Brokerages pump up M&M's target price on strong Q1 results, attractive valuations

The management remains committed to achieving mid-to-high teens growth for FY25

Shares of Mahindra and Mahindra (M&M) are set to capture attention on August 1 following a strong June-ended quarter, driven by a recovery in the farm business and robust SUV order book. Brokerages have responded positively to the Q1 results, raising target prices due to the company's attractive valuations compared to peers.

JPMorgan and Morgan Stanley have both maintained 'overweight' ratings on M&M, hiking target prices to Rs 3,210 and Rs 3,304 per share, respectively. They are optimistic about the company's strong operating outlook in both the auto and farm sectors.

Catch all the market updates on our live blog

Investec analysts also upheld their 'buy' rating on M&M, increasing the target price to Rs 3,220 from Rs 3,100 per share, citing sustained growth momentum, operational performance, and earnings upgrades. "M&M's valuation is supported by a 20 percent EBITDA CAGR, an EPS upgrade cycle, EV readiness, and strong ROIC," they noted.

ALSO READ: M&M eyes mid-to-high teens growth for FY25; Thar Roxx debut in spotlight

Nomura issued a 'buy' recommendation for M&M with a target price of Rs 3,417 per share, highlighting attractive valuations. "M&M's current valuation at 14x FY26 EV/EBITDA is appealing compared to peers at 15-22x, given a 16 percent core EPS CAGR over FY24-27F," the brokerage firm stated. They also mentioned that the success of Thar Roxx, battery electric vehicles (BEVs), and rural recovery will be key drivers for further re-rating.

The management remains committed to achieving mid-to-high teens growth for FY25. "We aim for mid-to-high teens growth for FY25, driven by the ramp-up of the XUV 3XO and the upcoming Thar 5-door, or Thar Roxx, set to launch on August 15. Having started Q1 with 24 percent growth, we aim to end the year within this range," said Rajesh Jejurikar, Executive Director and CEO (Auto and Farm Sector) at M&M during the post-earnings conference call.

Since FY20, M&M has increased its SUV production capacity from 19,000 units to 49,000 units by the end of FY24, with plans to reach a monthly SUV capacity of 64,000 units by the end of FY25.

In the tractor segment, M&M's market share grew by 180 basis points year-over-year (YoY) to 44.7 percent in Q1FY25, with total tractor sales increasing by 5 percent YoY to 1.2 lakh units, marking its highest-ever quarterly volumes. Core tractor margins also saw a significant improvement in Q1FY25, rising 110 basis points YoY to nearly 20 percent, attributed to reduced expenses and lower commodity costs.

Overall, M&M's net profit declined by 5 percent YoY to Rs 2,613 crore in Q1FY25, while revenue from operations rose by 12 percent YoY to Rs 27,039 crore.