Accumulate This Homegrown Auto Sector Stock, Shares Can Jump Upto 18%, Says Religare Broking

Leading brokerage firm Religare Broking has rated Accumulate to Homegrown large cap Auto sector company Mahindra & Mahindra Limited (M&M) for a Target Price of Rs 1,434 per share. According to the brokerage firm, with the given target price, the stock is likely to jump 17% from its current level if purchased at the current market price.

Stock Outlook & Returns

The last traded share price of the M&M stock on NSE is Rs 1222.30 per share, down 0.40% as compared to its previous close of Rs 1227.15 per share. The stock hit a fresh 52 week high at Rs 1,366.55 on 1 November 2022. Its 52 week low level is Rs 671.15. It has a market cap of Rs 1,50,053 crore.

The stock in a week fell by 4.48% in a week, in a month fell by 2.85%, and in 3 months fell by 2.85% respectively. However, over the past 1 year, it gained 32.18%, giving a positive return on investments. In the past 3 years it has given a multibagger return of 121.27%. In the past 5 years, it has given 72.45% positive returns.

 

 

Encouraging revenue backed by strong volumes

M&M reported its Q2 revenue at Rs 20,829 Cr registering a growth of 56.6% YoY, on the back of low base due to chip shortages and exceptional demand for passenger vehicle and farm equipment. The total sales were at 272,233 units up by 43.3% YoY of which domestic sales were at 260,357 units higher by 45.7% YoY and export sales were at 12,866 units up by 7.8% YoY. Amongst segments, passenger vehicle sales grew by 76.7% YoY and Farm equipment grew by 5.2% YoY.

Improving realizations, margins remain stable

The company's average realization came in at Rs 7,62,720/unit up by 9.3% YoY due to operating leverage and higher priced models. The company posted its EBITDA at Rs 2,496 Cr up by 50.4% YoY and EBITDA margin came in at 12% marginally contracting by 50 bps YoY. "We believe the margins will improve in coming quarters due to commodity tailwinds, better capacity utilization and price hikes to benefit the margins," the brokerage has said.

UV segment to drive the growth

Over the decade we have seen a shift in consumer preference from compact vehicle to utility vehicle. M&M traditionally has been one of the leaders in this segment and its new launches have garnered good response amongst customers. We expect the company to increase its revenue market share in the UV segment driven by new products, capacity expansion and its venture into EV segment.

Key concall highlights

1. The company took price hikes ~1.5%-2.0% across segments.

2. According to the management, the company improved its revenue market share in the SUV segment from 17.5% to 19%.

3. M&M has a current order book of ~260,000 units.

4. The company is planning to launch special edition variant for the existing Thar and 5-Door model by 2024.

Valuations

Religare Broking said, "We believe M&M's Auto division which includes the passenger vehicle segment will drive the growth and in addition it will continue to maintain its strong position in rural markers for farm equipment. The growth will be driven by capacity expansion, strong order book, commodity tailwinds and increasing its market share. The outlook on the company remains positive and we expect its Revenue/EBITDA to grow at a CAGR of 23.2%/29.3% over FY22-24E. We recommend a Accumulate rating with a target price of Rs 1,434."

Disclaimer

The stock has been picked from the brokerage report of Religare Broking. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.