M&M Q2 Preview: Farm segment, new SUVs to boost revenue; flat profit expected

M&M has significantly outperformed the Nifty 50, which rose only 10 percent in the same period.

Mahindra and Mahindra, India’s second-largest SUV major, will release its earnings report for the second fiscal quarter of FY25 on November 7. A decent rise in volumes and improvement in the farm business are expected to help the company's sales on a year-on-year basis.

According to a Moneycontrol poll of seven brokerage firms, the Scorpio maker is anticipated to record a robust 11.6 percent year-on-year revenue increase, reaching Rs 27,144 crore. However, its net profit is projected to remain flat at Rs 3,452 crore from Rs 3,418 crore in the same quarter of the previous fiscal year.

Phillip Capital suggests that lower operating leverage and higher advertising spends in the auto segment could dent profit growth in the quarter.

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Earnings estimates from analysts polled by Moneycontrol are in a narrow range, indicating that any positive or negative surprises could trigger a sharp reaction in the stock price. Brokerage firm Sharekhan was the most optimistic, suggesting that the net profit cold rise to Rs 4,028 crore, a solid 17 percent increase. Meanwhile, Phillip Capital forecasts a net profit of Rs 2,901 crore, a 16 percent decline from last year.

What factors are likely to aid the auto major?

Strong SUV launches:  Analysts suggest that M&M will likely experience a healthy response towards new launches and that consistent capacity ramp-up in SUVs will help the company’s volumes grow faster among peers. For instance, the company’s launch of 3XO and the new Thar Roxx will accelerate the company’s SUV growth in the coming quarters.

Positive farm business: Positive growth has been supported by improving rural sentiments, on surplus monsoon. M&M's market share in tractors grew by 180 basis points (bps) YoY to 44.7 percent in the first quarter and the management expressed confidence in growing tractor volumes.

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Steady EBITDA: Brokerages suggest that the margin will expand on better margins for the auto and farm segments but could be offset by a lower mix of the higher-margin tractor segment.

In October, the company reported a robust 25 percent year-on-year surge in SUV sales, reaching a record 54,504 units in October—its highest-ever monthly figure. Tractor sales shot up by 30 percent YoY to 65,453 units. Three-wheeler sales grew by 5 percent to 9,826 units.

What should you look out for in the quarterly show?

Key things to watch out for are the production ramp-up plan in UVs and the tractor demand outlook.

The volume guidance for the automotive segment for FY25, industry discounting trends, and competition are key focus areas. Additionally, the impact of commodity costs during the quarter and expectations for how these costs will evolve in the future are important considerations.

With a robust 68 percent year-to-date surge, M&M has significantly outperformed the Nifty 50, which rose only 10 percent in the same period. At bout 10 am, M&M shares were trading at Rs 2,949, higher by 2 percent.

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