M&M share price rallies as strong SUVs demand drive May sales; should you buy this auto stock?

Auto giant, Mahindra & Mahindra (M&M) share price rallied by at least 1.5% on BSE during Thursday's trading session as the company recorded double-digit growth in May month passenger vehicles sales. Strong demand for SUVs has lifted overall monthly performance, while M&M saw healthy growth in exports and three-wheelers as well.

As per the regulatory filing, passenger vehicles stood at 32,886 units in May 2023, up by 22% from sales of 26,904 units in the same month a year ago. Of the total, SUV sales climbed by a whopping 23% YoY to 32,883 vehicles.

In the first two months of FY24, total passenger vehicle sales came in at 67,584 units, rising by 37% from 49,430 units sold in April - May 2022.

Meanwhile, M&M's domestic sales for Small Commercial Vehicles (LCV < 3.5T) stood at 19,053 vehicles.

M&M said, "The sales volume for both SUVs and PikUps were restricted by a short-term disruption in engine-related parts at the supplier end. The semiconductor supply constraints on specific parts like Air Bag ECU also continued in this month."

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Further, M&M recorded exports of 2,616 vehicles in May 2023, as against exports of 2,028 units in May 2022, registering a growth of 29% YoY. Between April to May 2023, the exports skyrocketed by 71% YoY to 11,403 vehicles.

Veejay Nakra, President, Automotive Division, M&M Ltd., “We continue our growth trend, backed by strong demand in SUVs. We sold a total of 33,931 units, translating into a domestic growth of 23% in May. We have delivered healthy YoY growth in 3-Wheelers and export segments as well. The sales volume for both SUVs and Pik-Ups were restricted by a short-term disruption in engine-related parts at the supplier end. The semiconductor supply constraints on specific parts like Air Bag ECU, continued during the month too.”

At the time of writing, M&M's share price traded at ₹1,328.20 apiece, surging by ₹9.80 or 0.74% on BSE. The stock has gained by at least 1.48% to ₹1,337.95 apiece on the exchange in the day.

Brokerages have raised their target price in M&M shares while recommending buying. The auto player has exited its loss-making businesses and has turned around several businesses which are expected to gather the confidence of shareholders.

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In its research note dated May 31st, Geojit's analysts said, "M&M's strong UV performance and healthy backlog are expected to support overall performance in the near term. In line with its aim of investing in new production and battery assembly lines, M&M opened a Treo manufacturing line at its Haridwar plant, which bodes well for future performance. Hence, we reiterate our BUY rating on the stock, with a rolled forward target price of Rs. 1,486 based on 15x FY25E adjusted EPS."

Further, while raising the target price, LKP Securities in their note said, "M&M has over time exited its loss-making businesses and have turned around several businesses which would definitely gather confidence of shareholders. The company has identified several growth drivers to leverage the core strength of M&M group and accelerate the growth for the company over the medium term."

LKP's note added, "We maintain BUY on attractive valuations; SoTP-based target price stands at ₹1,685 ( ₹ 1,310 core business valued at 12x rolled over FY25E earnings + subsidiary valuation of ₹375) in line with our assumptions of margin improvement on increase in volumes and value of SUV, 3Ws and LCV segments, decent growth in FES, production increase offering operating leverage, price hikes, and prudent cost reduction measures."

Also, research analysts at ICICI Securities in their note said, "M&M is targeting SUV wholesale volume of ~34-35k units a month for most of CY23 and will then see higher volume driven by an increase in UV capacity from CY24 to ~49k units vs current ~39k. In FY23, market share for SUV portfolio increased 370bps YoY to 19.1%, and tractor market share was up 120bps YoY to 41.2%. M&M is looking forward to low single digit growth in domestic tractor market for FY24, against which we are building in 6% volume decline. It is looking to further increase its tractor market share with the introduction of a new platform for light-weight tractors in FY24."

ICICI Securities also raised its target price on M&M. It said, "We value M&M on a revised SoTPbased target price of Rs1,478 (earlier: Rs1,386), implying 18x FY24E core EPS."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.