M&M Q4 Results: Brokerages keep ‘buy’ tag on 22% profit jump

M&M Q4: Motilal Oswal maintained Buy rating with a Target Price of Rs 1,500/share.

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Mahindra & Mahindra (M&M) share price is likely to open on a positive note on May 29 as the company in the last week posted better numbers for the quarter ended March 2023.

Mahindra & Mahindra posted a net profit of Rs 1,549 crore for the quarter ended March, up from Rs 1,268 crore in the base quarter. The net profit was up 22.1 percent and up 67 percent YoY including exceptional items. Analysts’ expectations on the YoY increase had varied between 39-69 percent.

Revenue for the quarter came at Rs 22,571,4 crore, up 31 percent from Rs 17,237 crore in the same quarter of the previous fiscal. Revenue growth was above analyst estimates of 28-29 percent growth.

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Here is what brokerages have to say about stock and the company post-March quarter earnings:

Motilal Oswal

While the outlook for tractors remains stable, broking houses expect the Auto business to be the key growth driver for the next couple of years. Despite the deterioration in the mix, it estimates revenue/EBITDA/PAT CAGRs of ~14/19/16 percent over FY23-25E, respectively.

The implied core P/E for MM stands at 14.2x/12.5x FY24E/FY25E EPS.

While the valuation is still cheap compared to peers, it has seen a substantial rerating in FY23 as the stock is now trading in line with its five-year average core PE (against a discount of 30 percent earlier) driven by a strong performance in the SUV segment, market share gain in tractors and new launch pipeline in EVs.

Motilal Oswal maintained a Buy rating with a Target Price of Rs 1,500/share (Mar’25E based on SOTP).

Sharekhan

Post reporting in line operating performance, M&M has guided for low single-digit growth in the tractor industry in FY2024 and has indicated that, excluding the supply chain constraints, it has largely achieved its targeted capacity in the PV segment.

Further, the company is strategically focussing on achieving a leadership position in most of its operating segments and is aiming to grow its non-core business as per its potential. M&M is consistently improving its profitability, as this was the consecutive 5th quarter when the automotive segment as well as the FES segment reported sequential improvement in EBIT margin.

Historically, M&M’s operating performance has largely depended on the tractor segment; however, Sharekhan believes the auto segment is expected to drive its operating performance in the coming years due to increasing volumes going ahead.

It maintains a Buy rating with an SOTP-based price target (PT) of Rs 1,550 (16.5xFY25 core EPS, Rs. 334 for listed subsidiaries and Rs. 209 for the EV arm) on consistent improvement in profitability, focus on disciplined capital allocation, and aim to achieve market leadership in its operating areas.

Also Read – M&M to roll out new lightweight platform for Swaraj Tractors

Nirmal Bang

Mahindra and Mahindra management indicated that open bookings as of May’23 stood at more than 292,000 units. M&M is planning to launch a new range of 25-29HP light-weight tractors and an all-new Bolero Maxx Pick-Up range. It has received good traction for its recently launched electric variant of XUV400 with order bookings of more than 20,000 units. Moreover, in order to meet the growing demand and reduce the long waiting periods, M&M is expanding its UV capacity by 49,000 units by FY24-end.

For the Auto segment, the broking firm is building in ~12 percent volume CAGR over FY23-FY25, led by new capacity addition and a strong order book. For the FES segment, the company has guided for industry-wide volume growth of low single digits for FY24.

Nirmal Bang believes that with the increase in production levels, softening RM costs and improvement in the product mix, margins will improve going ahead.

It expects 12 percent and 6 percent volume CAGR for Auto and FES segments respectively over FY23-FY25, and estimates 12 percent CAGR in revenue over FY23-FY25.

The core business is valued at ~16x FY25E core EPS owing to a strong order book and robust demand outlook, while the other listed entities are valued at the current market value to arrive at a target price (TP) of Rs 1,558. We maintain buy on M&M

CLSA

The research firm has given a buy rating on M&M and raised the target price from Rs 1,619 to Rs 1,700 per share.

CLSA believes that the core business is on track to deliver a strong performance. The higher other expenses offset the gross margin expansion.

It expects M&M to maintain an SUV volume market share above 20 percent. The El Nino concern is overstated and expect low and single-digit industry growth.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.