Mahindra and Mahindra share price jumps 5% after Q4 numbers; should you buy or stay away? Here's what top brokerages say
5 min read 29 May 2023, 09:27 AM ISTMahindra and Mahindra share price: Mahindra and Mahindra stock is up 38 per cent in the last one year against a 28 per cent gain in the BSE Auto index and a 15 per cent gain in the benchmark Sensex.
PremiumMahindra and Mahindra share price rose over 5 per cent in early deals on Monday (May 29) boosted by the company's healthy March quarter earnings. The stock opened over 2 per cent higher at ₹1,312.05 and soon rose over 5 per cent to ₹1,350 level.
As Mint reported earlier, Mahindra & Mahindra on May 26 reported a standalone net profit of ₹1,549 crore in the quarter that ended March 2023, registering a growth of 22.1 per cent from ₹1,268 crore in the corresponding quarter of the previous year.
The company’s revenue from operations from Q4FY23 rose 31 per cent to ₹22,571.4 crore from ₹17,237 crore, YoY.
The standalone revenue of the automotive segment was up 35 per cent to ₹16,400 crore, while the standalone revenue of the farm equipment segment increased 29 per cent to ₹5,584 crore.
Read more: M&M Q4 results: Net profit rises 22% to ₹1,549 crore, announces dividend of ₹16.25
The stock ended with a mild gain of 0.34 per cent at ₹1,281.85 after the March quarter results on May 26.
Mahindra and Mahindra stock has significantly outperformed the benchmark Sensex and BSE Auto index in the last one year. The stock is up 38 per cent in the last one year against a 28 per cent gain in the BSE Auto index and a 15 per cent gain in the benchmark Sensex.
Mahindra and Mahindra shares hit their 52-week high of ₹1,396 on BSE on February 16, 2023, but witnessed some profit booking thereafter. As of May 26, the stock is 8.5 per cent down from its one-year peak level.
Brokerages upbeat
Most brokerage firms are upbeat about the stock, believing that the auto segment will be the driver of growth for the company.
Brokerage firm Motilal Oswal Financial Services maintained a buy call on the stock with a target price of ₹1,500, citing Mahindra & Mahindra's MM’s Q4FY23 operating performance was in line, though PAT exceeded expectations thanks to higher other income and lower tax.
"While the outlook for tractors remains stable, we expect the auto business to be the key growth driver for the next couple of years. Despite the deterioration in the mix, we estimate revenue, EBITDA and PAT CAGRs of nearly 14 per cent, 19 per cent and 16 per cent, respectively, over FY23-25E. The implied core PE (price-to-earnings ratio) for Mahindra & Mahindra stands at 14.2 times and 12.5 times FY24E and FY25E EPS respectively" said Motilal Oswal.
"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 discount of 30 per cent earlier) driven by a strong performance in the SUV segment, market share gain in tractors and new launch pipeline in EVs (electric vehicles)," said the brokerage firm.
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Brokerage firm Nuvama Wealth Management has a similar view on the stock. It also maintained a buy call on the stock with a target price of ₹1,470, slightly raising it from the earlier target price of ₹1,430, building in revenue and core earnings CAGR of 12 per cent and 14 per cent over FY23–25E.
"We recommend a 'buy' with a SoTP-based target price of ₹1,470 based on 13 times FY25E standalone core EPS (earnings per share) and value of subsidiaries/investments at ₹635 per share. We argue Mahindra & Mahindra’s core FY25E P/E of 10 times is inexpensive," said Nuvama.
Nuvama also underscored that the company's auto segment is the key driver of growth and it expects a 12 per cent revenue CAGR over FY23–25E, despite a muted 4 per cent CAGR in the farm segment and a robust 15 per cent CAGR in the Auto segment.
The brokerage firm believes this shall be powered by robust growth and market share gains in PVs (passenger vehicles).
"The PV order book is quite strong at 2,92,000 units with robust demand for Scorpio-N, XUV700, Thar and the newly launched E-XUV400. Furthermore, production capacity is being raised from 39,000 units per month to 49,000 units per month by Jan-24E. Going ahead, EVs remain a key focus—plans afoot to launch five electric PVs on a dedicated platform over FY25–27E," said Nuvama.
Brokerage firm Nirmal Bang also maintained a buy call on the stock, with a target price of ₹1,558
"We remain positive on Mahindra & Mahindra due to the following catalysts: (1) Strengthening leadership in the SUV segment, (2) market share gains in UV (utility vehicles) and FES (farm equipment sector) segments, (3) margin expansion, and (4) prudent capital allocation driving ROE (return on equity) improvement," said Nirmal Bang.
The brokerage firm expects a nearly 12 per cent volume CAGR over FY23-FY25 for the auto segment, led by new capacity addition and a strong order book.
The brokerage firm believes that margins will improve going ahead with the increase in production levels, softening raw material costs, and improvement in the product mix.
"We are building in EBITDA margin expansion of 170 bps over FY23-FY25. We expect a 12 per cent and 6 per cent volume CAGR for auto and FES segments, respectively, over FY23-FY25. We estimate a 12 per cent CAGR in revenue over FY23-FY25," said Nirmal Bang.
"We value Mahindra & Mahindra on SOTP basis, with the core business valued at nearly 16 times FY25E core EPS, owing to the 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 of ₹1,558," Nirmal Bang said.
Himanshu K Singh, Research Analyst at Prabhudas Lilladher believes Mahindra & Mahindra should benefit from (1) growing customer preference for SUVs, (2) capacity ramp-up to fulfil strong order book, (3) market share gains in the tractor industry, and (4) a strong response to EV portfolio (XUV4OO).
"Benign raw material prices, operating leverage and the end of a volume introductory priced model would benefit margins (we build in 140bps expansion over FY23-25E). Our EPS estimates remain largely unchanged. Retain a ‘buy’ with a target price of ₹1,585," said Singh.
As per the analyst, Mahindra and Mahindra's management noted that El Nino won’t be affecting tractor sales as other positive factors like good reservoir levels, good Rabi crop, improving terms of trade for farmers, increased spending in rural India to help the industry.
For the automotive segment, order-book stands strong at 2,92,000 bookings compared to 2,66,000 in Q3FY23 largely led by an increase in Thar and XUV4OO. Cancellations at 8 per cent have increased slightly from 5-7 per cent cited in Q3FY23. Singh observed that the semiconductor issue is still persistent with a loss of around 3,000 units per month.
Disclaimer: The views and recommendations given in this article are those of the analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
