BackM&M share price rallies over 3% as Q1 results beat estimates; Should you buy? Here’s what brokerages say
M&M’s Q1 net profit nearly doubled to ₹2,773.73 crore in the quarter ended June 2023 as compared to ₹1,403.61 crore in the same quarter last year.
PremiumShares of auto major Mahindra & Mahindra (M&M) rallied over 3% in the early trade on Monday after the company’s Q1 results beat analysts’ estimates with most brokerages reiterating their bullish view on the stock. M&M share price gained as much as 3.55% to ₹1,517.10 apiece on the BSE.
M&M’s Q1 net profit nearly doubled to ₹2,773.73 crore in the quarter ended June 2023 as compared to ₹1,403.61 crore in the same quarter last year.
The company's standalone revenue from operations during Q1FY24 jumped 23% to ₹24,368 crore from ₹19,813 crore, YoY.
EBITDA during the quarter under review rose 46.5% to ₹3,547 crore from ₹2,421 core, while EBITDA margin improved to 14.6% from 12.2%, YoY.
M&M’s automotive business recorded an increase in EBIT margin to 7.5% from 5.3%, YoY.
Read here: M&M Q1 Results: Net profit jumps 97% to ₹2,774 crore; revenue grows 23% YoY
Meanwhile, M&M’s MD & CEO Anish Shah clarified that the company’s acquisition of 3.53% stake in private lender RBL Bank for ₹417 crore was based on a long-term view (7-10 years) and its capital allocation discipline has not changed.
While it has mentioned that it may consider increasing stake to 9.9%, it does not expect to invest more unless it sees compelling strategic value at some point in the future.
Read here: M&M Q1 result: M&M will not invest in any other bank, CEO Anish Shah
Here's what brokerages have to say on M&M Q1 results and M&M share price:
HDFC Securities
M&M’s Q1 adjusted PAT came in ahead of HDFC Securities’ estimate, led by better than expected margins. The margin surprise was driven by improved performance from the tractor segment.
The brokerage firm remains positive on the business momentum, given a strong order backlog for UVs, the target to further increase its market share in tractors on the back of new launches; focused strides taken to achieve a strong position in EVs and challenge set for growth gems to grow 5x.
“While the recent stake buy of RBL posed serious concerns around capital allocation, we believe as long as they continue to focus on their core business segments and work towards achieving their long-term targets, investors should not be too concerned," HDFC Securities said.
It maintained a ‘Buy’ rating and raised the target price to ₹1,674 per share from ₹1,617 earlier.
Motilal Oswal Financial Services
M&M’s Q1FY24 operating performance was marginally above Motilal Oswal’s estimate. It believes M&M should outperform both the divisions as in SUV, it has a major share of high-end SUVs wherein demand is relatively better and in tractors, there are launches in light weight category through OJA and Swaraj.
“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 deterioration in the mix, we estimate revenue, EBITDA and PAT CAGR of 14%, 20% and 20%, respectively, over FY23-25," Motilal Oswal said.
The implied core P/E for MM stands at 15.6x/14.1x FY24E/FY25E EPS. While the valuation is still attractive versus peers, M&M has seen a substantial rerating in FY23 as the stock is now trading in line with its five-year average core P/E (against discount of 30% earlier), driven by a strong performance in the SUV segment, market share gain in tractors and new launch pipeline in EVs, it added.
The brokerage raised its FY24 and FY25 EPS estimates by 10% and 5%, respectively, to account for better EBITDA margin and higher other income.
It maintained its ‘Buy’ rating on the stock with a target price of ₹1,725 per share.
Nuvama Institutional Equities
Nuvama Institutional Equities said M&M’s Q1 revenue and EBITDA grew strongly in line with estimates. It expects healthy growth momentum with a 14% revenue CAGR over FY23–25E supported by robust growth in the auto segment and moderate growth in the farm segment.
Besides, better net pricing in the auto segment shall boost profitability, driving core earnings CAGR of 20% over FY23–25E. Stock catalysts include production ramp-up (autos) and incremental announcements pertaining to EVs, it added.
The brokerage maintained its’ Buy’ call on the stock with a 12-month target price of ₹1,790 per share. It argues that M&M’s core FY25E P/E of 10x is inexpensive.
Antique Stock Broking
M&M’s Q1FY24 revenue was in line with the brokerage estimate, up by 23% YoY and 8% QoQ.
Going ahead, it expects M&M to continue its strong performance led by the PV segment and increasing capacity and new models to further drive volumes.
“We remain positive on the company as we believe the current valuation of core business at 9x FY25E earnings are undemanding. We broadly maintain our estimates and include the valuation of Mahindra Electric Automobile Ltd to our SoTP at a 30% discount to the transaction value to arrive at a target price of ₹1,850 at 14x FY25 EPS for core business," the brokerage said.
It has a ‘Buy’ rating on the stock.
LKP Securities
The company has identified several growth levers, which can leverage the core strength of M&M group and accelerate the growth for the company over the medium term. RBL stake acquisition and Temasek stake are both positive in its view. It expects strong SUV run to continue as the semiconductor issue is minimum.
The brokerage maintained ‘Buy’ on attractive valuations and has a target price of ₹1,727 per share in line with its 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.
At 10:20 am, M&M share price was trading 3.41% higher at ₹1,515.05 apiece on the BSE.
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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.
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