Mahindra & Mahindra (MM) In Focus On Targeting 49k Units SUV Capacity For FY24: Buy?

During morning trade on Friday, Mahindra & Mahindra (MM) was up 1.11%. The reason the stock is in focus is because, despite a ramp-up in production, MM's SUV orderbook is still strong. The company claims that its supply problems have mostly subsided and that MM is currently on plan to fulfil its FY24 capacity of 49k SUVs, having now reached 42k units. Although the company's automotive segment is expected to have a strong growth trajectory, Q2FY24 saw good revenue growth.

With sales of Rs 24,310 Cr in Q2FY24, M&M saw an upsurge of 15.7% YoY and 1.1% QoQ. Positive volume trends throughout the automobile segment, particularly in the UV category, were the primary driver of the revenue growth. With a gross profit of Rs 5,931 Cr, up 20.2% YoY but flat sequentially, the firm recorded mixed margin performance. Its margin, which was 24.4%. In a similar vein, EBITDA, which was recorded at Rs 2,934 Cr, showed growth of 20.1% YoY but sequential reduction of 9.3% with a margin of 12.1% that jumped by 44bps YoY and dropped by 138bps QoQ.

The brokerage firm Prabhudas Lilladher has initiated a buy rating on the stock with a target price of Rs 1,740.

Prabhudas Lilladher: BUY | CMP: Rs1,524 | TP: Rs1,740

"We change our FY24/FY25 core EPS estimates by 5%/0%/-0.7% to factor in higher SUV volumes, largely in-line margin performance and marginal decrease in ASP. M&M's 2QFY24 revenue came below our and consensus estimate likely led by lower-than-expected ASPs in the Automotive segment.

EBITDA margin at 12.6% came below our estimate of 12.9%, and was largley in-line with consensus. Management noted that FES margins had one-time impact from bunched-up launch costs and operating de-leverage. Suppply issues have larely normalised and MM is on track to reach 49k units SUV capacity for FY24 (at 42k at present). MM's SUV orderbook remains robust helped by good demand for its products, despite ramp-up in production," said the brokerage.

"We believe M&M should benefit from (1) growing customer preference for SUV, (2) ramp-up in production to fulfill strong demand and order book, (3) market share gains in the tractor industry from new segments, and (4) rampup in EV portfolio starting 2025. Also, benign RM, operating leverage and end of volume of introductory priced model will benefit margins (we buil-in ~150bps expansion over FY23-26E). Retain 'BUY' with TP of Rs 1,740 (Rs. 1,775 earlier) valuing at 18x on Sep-25E core EPS and Rs 326 for subsidiaries," added the brokerage.

Motilal Oswal: CMP: INR1,524, TP: INR1,775 (+16%), Buy

"While the outlook for tractors remains stable, we expect the Auto business to be the key growth driver for the next couple of years. Despite deterioration in the mix, we estimate revenue/EBITDA/PAT CAGR of ~15%/19%/21% over FY23-25E. The implied core P/E for MM stands at 16.2x/14.8x FY24E/FY25E EPS. While the valuation is still attractive vs. peers, MM has seen a substantial rerating in FY23 as the stock is now trading in line with its five-year average core P/E (against discount of 30% earlier), driven by a strong performance in the SUV segment, market share gain in tractors, and a new launch pipeline in EVs. We reiterate our BUY rating on the stock with a TP of INR1,775 (based on Dec'25E SOTP)," said the brokerage firm.

Religare Broking: Target price: Rs 1,804, Buy at CMP

"With consistent demand in its Automotive division especially for its utility vehicles will drive the volume higher for the company while new launches in LCV segment and Farm Equipment would further aid in volume growth in the respective segments. The company has been consistently improving its market share across divisions, indicating healthy response for products and strong execution of its strategy.

Further, traction in its EV business in passenger vehicle and LCV segment shall provide the next leg of growth for the company. With a favorable demand scenario in the Auto Division and strong growth outlook in the Farm Equipment business, we estimate its revenue/EBITDA/PAT to grow at a CAGR of 18.2%/25.1%/38.2% over FY23-FY25E. We maintain our Buy rating with a revised target price of Rs 1,804 (14.5x of FY25 EPS and its subsidiaries at Rs 290)," said the research analysts of the brokerage in a note.

BOB Capital Markets: Buy at CMP for a TP of Rs 1,849
"MM's auto segment continues its strong growth momentum, and we expect FES to regain ground after a seasonally weak Q2FY24. We lower our FY24 EBITDA estimates by 3% to factor in the FES slowdown but our EPS stays broadly unchanged on lower interest cost post debt repayment. For FY25, we raise EBITDA and EPS estimates by 1-2% and continue to value MM's core business at 17x FY25E P/E. Our revised estimates yield a new SOTP-based TP of Rs 1,849 (from Rs 1,824) that includes Rs 283 as the value of subsidiaries. Maintain BUY," said the brokerage.

HDFC Securities: Buy at CMP for a target price of Rs 1,767

"M&M Q2FY24 PAT at INR 34.5bn was ahead of our estimate of INR 26.9bn due to higher than expected other income even as the operating performance was in line with our estimates. While auto segment margins were ahead of our estimates, tractor margins lagged behind estimates due to new launch costs. On the back of strong demand for its models, M&M has gained 110bps share in UVs to 18.1% in H1FY24. Also, while industry demand is slowly decelerating, M&M continues to enjoy a healthy order backlog at 286k units in SUVs," said the brokerage.

"In the up to 3.5T LCV segment, while demand is subdued, M&M has further strengthened its market share to 49.6% (+280bps YoY). Even in tractors, M&M was able to increase its share by 150bps to 41.6% in H1 on the back of new launches. We continue to remain positive on the business momentum, given: (1) a strong order backlog for UVs will help it further gain share; (2) recent new launches will further help gain share in tractors; (3) focused strides taken to achieve a strong position in EVs; (4) challenge set for growth gems to grow 5x. On the back of strong outperformance in H1, we have raised our FY24/FY25 estimates by 9/6%. Maintain BUY, with a revised TP of INR1,767/sh (earlier at INR1,674/share) as we roll forward to Sep'25 EPS," the brokerage note of HDFC Sec stated.

Disclaimer

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