M&M has convincing market leadership in the SUV & Tractor space. Buy for target price of Rs 2,225: ICICI Direct

Performs well, auto segment to lead the growth path

About the stock: Mahindra & Mahindra (M&M) is a conglomerate with presence in auto, IT, financial services, logistics, hospitality and real estate among others. At standalone level it is India’s largest tractor manufacturer (41.2% FY23 market share) & 2 nd largest CV, 4 th largest PV maker (25.8%, 9.2% FY23 market share)

• FY23 standalone revenue mix – ~69% automotive, ~28% tractors

Q3FY24 Results: Reports healthy performance

At M&M, on standalone basis, topline for Q3FY24 came in at ₹25,289 crore (up 17% YoY) with automotive segment volumes growing 20% YoY at 2.1 lakh units & tractor sales volume at 1 lakh units (down 4% YoY). EBITDA in Q3FY24 came in at ₹3,236 crore with EBITDA margins at 12.8% (up 20 bps QoQ). Resultant PAT for the quarter stood at ₹2,454 crore (up 61% YoY). Automotive segment EBIT margins improved to 8.3% while Farm Equipment segment margins declined to 15.5%.

Investment Rationale

• Healthy SUV order book to ensure market share gains in PV space: M&M is the prominent market player in the domestic PV space predominately in the SUV category with its recent launches like XUV 700, Thar & Scorpio-N being an instant hit with customers primarily driven by the cutting-edge technology & value proposition offered at the right price point. Testimony to its success is healthy pending orderbook of ~2.26 lakh units with fresh booking run-rate at ~50k per month still exceeding its billing of ~40k units per month. With midcycle refresh of XUV400, it aspires to grow volumes in SUV space at mid to high teens in FY25E amidst domestic PV industry growth pegged at <5%. We expect double digit volume growth to continue in FY26E as well. This will ensure market share gains for M&M and is structurally positive (10MFY24 market share already up ~180 bps to 11%) • Tractor volumes to consolidate on high base, focus on market share gains: Domestic tractor space was resilient during the covid downturn and was the first one within the auto segment to surpass its pre-Covid peaks. Tractor volumes in FY21 stood at ~9 lakh units vs. its pre-Covid highs of ~7.9 lakh units in FY19. Going forward on a high base of ~9.5 lakh units in FY23, domestic tractor sales are seen consolidating at these levels with volumes expected to de-grow by 5% in FY24E and thereafter resume its 5- 7% long term volume CAGR trend. M&M’s focus in present times in on market share gains with 80 bps gain already witnessed in Q3FY24 at 41.8% and endeavour to further improve upon the same going forward. Rating and Target Price

We have a positive view on M&M and retain our BUY rating on the stock amidst its convincing market leadership in the SUV & Tractor space, tangible product outlook in the Electric PV domain and persistent focus on capital efficiency. We now value M&M at SOTP-based target price of ₹2,225 (11x FY26E standalone EV/EBITDA; 20% hold co. discount to investments, ₹300/share value accrued for its Electric PV arm).

Click here to download IDirect Mahindra & Mahindra Co Update Feb24