BackM&M shares dip over 2% after brokerage lowers FY24 EPS outlook by 8%
The domestic research and broking firm, however, reiterated its 'BUY' rating as it still expect 20 per cent EPS CAGR and 2 percentage points RoCE improvement for M&M over FY23-25, along with cheap valuations
PremiumShares of Mahindra & Mahindra on Thursday declined 2.52 per cent to trade at ₹1,257.40 apiece after domestic brokerage firm Motilal Oswal slashed its FY24E EPS estimate for M&M by 8 per cent to factor in a lower tractor/SUV volumes and the adverse impact of losses from new businesses.
The domestic research and broking firm, however, reiterated its 'BUY' rating as it still expect 20 per cent EPS CAGR and 2 percentage points RoCE improvement for M&M over FY23-25, along with cheap valuations.
It expects M&M to reach a target price of ₹1,525 per share, an upside of 20 per cent from current market price.
"Management indicated that demand environment for the auto business has been stable in general but it expects slower growth for tractors in FY24 (even under normal monsoons) due to high base and three Navratras in FY23," Motilal Oswal said in its report.
"While chip supply is improving, it is still not adequate enough to ramp-up production meaningfully. Chip supply is the only restricting factor to reach full capacity for production of SUVs. Profitability of both businesses should improve though ramp-up of new businesses (EVs and farm equipment) would dilute expansion. However, commodity cost inflation visible from the lows of 3QFY23 is the primary risk of MM’s business," it said.
SUV demand holding up well amid macro challenges
M&M is not witnessing any signs of demand moderation for its SUVs. Its orderbook is steady amid uncertain macro environment. There are signs of sustained stress at the lower segment in rural markets.
Waiting period for MM’s SUVs has come down by 1.0-1.5 months, largely benefitting from supply chain recovery. While supply chain issues are improving gradually, the situation is still volatile – for example, the last month’s production was hit by lower availability of crash sensor chips. The sole issue at this point remains the shortage of semiconductors, while the other supply chain issues have been substantially resolved since China is opening-up.
Hence, MM is not able to ramp-up its SUV production to full capacity of 39k units per month (v/s average wholesales of 30-33k units), the brokerage said.
Demand for both the divisions -- Automotive and tractors -- remains healthy; however, with multiple industry-wide challenges emerging in foreseeable future, the brokerage expects lower volume growth for both the divisions v/s earlier expectations.
"We now project lower growth for the SUV business of M&M, particularly in FY25 as the benefit of new products and strong order book fades along with increasing competitive launches," it said.
For the tractor segment, the brokerage reduced its volume assumptions for FY24/25 to factor in high base due to timing difference of festivities, and margin assumptions because of the adverse impact of farm equipment ramp-up.
The scrip touched an intraday high of ₹1,292.05 and an intraday low of ₹1,257.40. The stock has risen 71.47% in the last one year.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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