Buy Mahindra and Mahindra; target of Rs 1061: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra and Mahindra

M&M posted a decent operating performance amidst challenging RM scenario. 2QFY22 EBITDA margin came below our estimates and impacted raw material inflation as well as weak mix. Despite sharp price hikes taken by the company, tractor segment’s EBIT margin came in at 18.7% (-570/-160bps YoY/qoq) while automotive segment was at 2.7% (-380/+100bps YoY/Qoq). However, new product launches in automotive segment are seeing good traction with ~70k+ bookings for XUV700 and overall orderbook of ~160k units. Management mentioned that due to erratic monsoons, price hikes and higher base tractor demand is seeing some moderation and expect flat to low single digit growth in FY22. Thus focus is on farm machinery segment with an intention to make it ~10x by FY27. We continue to remain positive considering 1) baton of growth shifting from tractor to automotives gaining traction in Farm machinery businss 2) strong product pipeline in UVs and tractors to help outperform industry and 3) improved captial allocation to improve return matrix.

Outlook

We increase FY23/24 EPS by 1%/ 4% to factor in volume growth and cost control initiatives. Maintain ‘BUY’ with revised SoTP based TP of Rs 1,061 (v/s Rs978), built on target multiple of 18x for core business (unchanged).