CLSA upgrades M&M to ‘buy’ with 25% upside as SUV volume may surge 20% in FY24

CLSA anticipates tractor volumes to rise 13.6 percent YoY, driven by strong winter crop production and prices. Overall, CLSA’s analysis suggests that M&M is poised for growth across multiple business segments, leading to their bullish outlook and upgraded rating.

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Global research firm CLSA has upgraded Mahindra & Mahindra (M&M) to ‘buy’ from ‘outperform’ and has also raised the target price.

The global research firm has raised the target price from Rs 1,583 to Rs 1,619 per share.

At 1:59pm, Mahindra and Mahindra traded at Rs 1,281.30, up Rs 11.50, or 0.91 percent, on the BSE. It has touched an intraday high of Rs 1,305.50 and an intraday low of Rs 1,278.05.

The research firm has cited strong momentum across the farm and auto business, with expectations for SUV volumes to expand more than 20 percent in FY24 due to a strong order backlog as the reasons for the upgrade.

Additionally, it has mentioned that M&M plans to launch six new electric SUVs over the next five years and increase capacity to 49,000 units per month to service rising demand.

CLSA anticipates tractor volumes to rise 13.6 percent on-year, driven by strong winter crop production and prices. Overall, CLSA’s analysis suggests that M&M is poised for growth across multiple business segments, leading to their bullish outlook and upgraded rating.

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Vehicle ownership levels in India to speed up

CLSA says that auto sales in India are expected to rise all the way to 2031, driven by an increase in per capita income that is set to outpace vehicle prices. It predicts that lower-income states will lead the way in vehicle ownership over the next decade, and that premium and clean-energy vehicles will see stronger growth than mass-market sales.

According to CLSA’s analysis of India’s vehicle registration data, cars and two-wheelers should see strong growth, achieving 9-11.5 percent compounded annual growth rate (CAGR) in volume over the next decade.

Premium and cleaner-fuel vehicles to lead

CLSA’s analysis suggests that upgrades to premium and electric vehicles are likely to drive higher auto sales in India. As per their report, rising income levels are expected to boost demand for premium motorcycles and SUVs, while consumer awareness, government support, and declining ownership costs will drive demand for cleaner-fuel vehicles.

In particular, CLSA expects electric vehicles to account for 25 percent of annual two-wheeler registrations by FY31, indicating significant growth potential in this segment. They also predict that cleaner-fuel passenger vehicles will jump from 18 percent of registrations to 40 percent by FY31, demonstrating the increasing popularity of environmentally friendly vehicles in India.

Auto stocks to rerate

According to CLSA, most auto companies in India are trading at or below their historical trading ranges. However, as volumes increase at a projected 9-11.5 percent CAGR over the next decade, CLSA expects valuations for these companies to rerate.

In particular, CLSA recommends buying stocks linked to premium categories such as Bajaj Auto, Eicher Motors, M&M, and Tata Motors, as they expect valuations for these companies to expand at a higher rate compared to those linked to entry-level vehicles.

On the other hand, the global research firm has ‘sell’ calls on Maruti Suzuki and TVS Motor Company, suggesting that they may not be as well-positioned to benefit from the expected growth in the auto sector.

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