Buy Mahindra & Mahindra Stock For 33% Upside, Elevating EV Via Foreign Funding In E-PV

Stock Outlook

On July 08, 2022, M&M's stock's closed at Rs 1,133.60 per share. The stock in the last 1 month has moved up 9.12%, whereas, in past 1 year, its share gained 46.84%. The shares has further gained around 79.37% in 3 years and 69.63% in 5 years, respectively.

The 52-week low of the stock is Rs 671.15 per share, while the 5-week high is Rs 1,194.90 per share. The stock is trading is Rs 462.45 higher than its 52-week low level and Rs 61.3 below its 52-week high level.

According to the brokerage's estimated target price of Rs 1,500 per share, and the CMP of the stock, the stock has the potential to gain 33% around in 12 months.

Company Update

M&M has announced the formation of a new subsidiary for undertaking business activity in the domain of the electric passenger vehicle segment. It also announced a fresh investment by it and British International Investments (BII) to the turn of Rs 1925 crore each (spread over two tranches). The implied valuation of EV company is pegged at ~Rs 40,400-70,070 crore depending upon the stake held by the investor. BII will hold 2.75-4.76% stake in the new entity post its investment with M&M retaining the rest. The total capital requirement for the EVCo is envisaged to be ~ Rs 8,000 crore (US$1 billion) in FY24-27 for the planned product portfolio.

Brokerage Suggests buy for a target price of Rs 1500 per share

ICICI Securities said, "M&M's stock price has grown at ~10.8% CAGR (i.e. ~Rs 688 levels in July 2017), thereby outperforming Nifty Auto index in that time. We maintain BUY on EV proactiveness and continued RoCE focus."

According to ICICI Securities, "The transaction unlocks the EV business potential and is testimony to M&M's strong commitment on the EV front. We now value M&M at a revised target price of Rs 1,500 on SOTP basis vs. Rs 1,315 earlier (10x to base automobile business, lower end of valuation pegging to the electric PV business and 35% holding company discount to its listed & unlisted investments/group companies)."

"We assign Rs 227/share value for E-PV company assuming 4.76% stake sale @ Rs1,925 crore (conservatively) and 30% holding company discount," the brokerage added.

Key triggers for future price performance

ICICI Securities said, "We expect 20.4% FY22-24E revenue CAGR backed by 15.5% volume CAGR; margins seen at 13% in FY24E along with RoE of 14.6%. Proactive measures towards electrification theme while retaining strong capital efficiency focus on base businesses as well as investments. Strong order book in PV business amidst innovative and tech-enabled new product launches & capex spends to scale up execution capabilities."