Home/ Markets / Mark To Market/  M&M needs more than just EV fundraising to get investor attention

Mahindra & Mahindra Ltd (M&M) was in news after it announced a fundraise for its electric vehicle (EV) business, last week. While the company’s EV strategy seems encouraging, as of now, it has failed to reverse the stock’s subdued performance.

From its 52-week high of 1,397 apiece seen on the NSE in February, the stock is down by 17.6%. Also, M&M has seen a higher correction than the benchmark Nifty Auto index, so far this calendar year. A key factor weighing on investor sentiments is the possibility of 2023 being an El Niño year. This phenomenon creates a hotter summer and weaker monsoon, which mainly impacts segments more inclined towards the rural economy such as M&M’s tractor business. The vertical formed nearly 53% of the automaker’s Ebit (earnings before interest and taxes) in the nine months ended December.

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Graphic: Mint

It remains to be seen how the El Niño risk plays out. But as things stand, analysts don’t expect a meaningful improvement in the stock performance in the near term, only based on EV-related development. On 22 March, M&M announced raising funds from the International Finance Corp. (IFC) for its last mile mobility (LMM) company, NewCo. This subsidiary of M&M will house electric three-wheelers and small commercial vehicles. IFC will invest 600 crore in NewCo. Post the infusion, IFC will have a stake of 9.97-13.64%, which implies a valuation of up to 6,020 crore.

“The valuation is roughly in-line with what is already being assigned to M&M’s LMM business, which is part of the core automotive portfolio," said Varun Baxi, an analyst at Antique Stock Broking. “Also, the transaction doesn’t bring in any business synergies. The fundraising is not a game changer for M&M," he added. Eventually, a lot would depend on the pace of growth in LMM business’ sales volumes. In the December quarter, M&M’s electric three-wheeler sales volume stood at 11,800, nearly 7% of its total automotive volume.

Apart from the El Niño risk for its tractors segment, the utility vehicle segment is likely to see some volume moderation from waning pent-up demand and price hikes owing to regulatory changes. As per channel checks by Kotak Institutional Equities, the waiting periods are coming down sharply for most M&M models. While this indicates improving production levels, it also suggests weakening demand momentum. “We have cut our FY2023-25E earnings per share estimates by 2-3% led by lower volume and Ebitda margin assumptions," said Kotak analysts in a report dated 22 March. As such, near-term catalysts for the M&M stock appear few and far between.

Vineetha Sampath
Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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Updated: 27 Mar 2023, 12:22 AM IST
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