The stock Mahindra & Mahindra has corrected 20 per cent in the past couple of months due to fears of El Nino impacting tractor demand in FY24 along with receding waiting period of its UV portfolio, said domestic brokerage firm ICICI Securities upgrading the M&M stock from 'Add' to 'Buy' and revising its target price to ₹1,386 a share.
“We upgrade M&M to BUY from Add, as post the recent correction and factoring in the cut in tractor volume, M&M is currently trading at 12.5 times FY25E core EPS versus long term mean multiple of 15 times,” the note said.
The brokerage has trimmed its FY24E revenue/PAT estimates by 9 per cent/14 per cent and correspondingly reduced its TP by 8 per cent to ₹1,386, implying 16 times FY24E core EPS.
“In the past 15 years, on four occasions of El Nino, tractor volume declined by an average of 12 per cent. Thus, we are building in 12 per cent tractor volume decline for M&M in FY24 as against our earlier estimate of 6 per cent growth,” ICICI Securities stated.
On SUVs
For SUVs, though waiting period of XUV700 has declined, overall monthly retails in general have largely remained unchanged in the past 4-6 months, as per the brokerage report.
ICICI Securities believes the waiting period of XUV700 is down to 2-3 months in general as compared to 6-12 months in H1FY23 due to rise in cancellation rate.
For other key models like Scorpio N and Thar rear wheel drive, waiting periods are in excess of a year.
“With XUV400 and Thar RWD yet to get delivered, against current monthly wholesale number of 30-32k units, we are building in 35k units/month of SUVs in FY24. FES segment EBITM for M&M in the past has been sticky in nature, largely independent of fluctuation in volume and thus, we are building in 17.5 per cent EBITM in FY24E,” it said.
The brokerage expects M&M to receive ₹25 billion cash in FY24-25E combined, as a result of selling stake in its EV arms, thus, helping it generate superior FCF, with budgeted capex+ investment remaining unchanged at ₹50 billion per annum.
M&M stock closed 1.56 per cent higher at ₹1,145.85 apiece on Wednesday.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
