M&M extends gains on strong Q1 results; analysts say buy

Moneycontrol Bureau

Mahindra & Mahindra shares rose over 3% for the second straight session after the street cheered the utility vehicle maker's much better-than-expected first quarter results and several analysts maintained their "buy" or equivalent rating on the stock.

M&M's April-June quarter net profit rose 20% year-on-year to Rs 726 crore, while net sales accelerated 40% to Rs 9,248 crore. Analysts had expected the company to report a net profit of Rs 621.5 crore on revenue of Rs 9,100 crore, according to a CNBC-TV18 poll.

"M&M's Q1 performance supports our thesis on the company, where we see limited risk to earnings with strong UV volumes offsetting weakness in tractors," said, Sahil Kedia of Barclays Capital.

"Additionally, as the newer business ventures (medium & heavy commercial vehicles, two-wheelers etc) pick up speed in the coming quarters, we believe that M&M's revenue and profit stream will become more diversified and thus de-risked," he said, maintaining an "overweight" rating on the stock, with a target price of Rs 843.29.

Ashish Nigam and Kunal Jhaveri of Antique Stock Broking said, M&M's results surprise stemmed from better-than-expected margins at 13.9% backed by better product mix and prudent cost management, and lower-than-estimated depreciation and interest expenses.

The company has reduced its tractor growth forecast 0-2% from 5% earlier due to the poor monsoon this year, but analysts point out that the guidance is still higher than street expectations of a de-growth.

"Despite the macro headwinds, the ever-so-resilient auto segment, with a very exiting product pipeline, keeps us bullish," Nigam and Jhaveri said, maintaining a "buy" on the stock. They have a target price of Rs 885.

Other analysts like Sachin Gupta and Ashish Poddar of Edelweiss Securities also believe new launches in the utility vehicle segment may lower worries in the farm equipment segment.

The company is slated to launch the Mini Xylo, Ssangyong Rexton and the electric car Reva NXR in the second half of the current financial year. That apart, its XUV 500 sports utility vehicle has had a great response, with 20,000 bookings, and the Bolero continues to see more demand than supply.

"Fears over drought and slowdown may keep the stock under pressure in the near term. However, at 7.5 times FY14 expected core earnings per share, the valuation is attractive. New launches in the automotive business are the key drivers for the stock," the Edelweiss analysts said.

Edelweiss too have a "buy" on the stock, with a target price of Rs 839.

M&M shares were up 3.2% at Rs 745.60 on NSE in morning trade on Thursday.

Also Read:IIFL revises M&M earnings forecast post Q1 nos, retains buy

Nachiket Kelkar
nachiket.kelkar@network18online.com