Buy Mahindra and Mahindra; target of Rs 1390: Emkay Global Financial

Emkay Global Financial's report on Mahindra and Mahindra

MM has announced that British International Investment Plc (formerly CDC Capital) will invest Rs19.25bn by way of CCPS in its E-PV subsidiary (EVCo) for a post-conversion equity stake of 2.75-4.76% in FY28. The eventual stake will depend on the EVCo’s revenue achievements by FY27. Investments by BII and MM in the EVCo will be utilized to create an E-UV portfolio. Four products are expected to be launched on new dedicated platforms over FY25-27, while one product (XUV 400) will be launched on the existing platform in Sep’22. The aspirational sales target is 200,000 units, representing a 30% EV share by FY27. We remain positive on MM due to the sales upcycle across segments and a large orderbook in PVs (~170,000 units). We raise FY23-24E EPS estimates by 5% based on a 3% increase in our volume assumptions. Following the revision, our FY22-24E revenue/earnings CAGRs stand at 22%/24%.

Outlook

We retain Buy with a higher SOTP value of Rs1,390 (Rs1,250 earlier), as we add Rs233/sh for the E-PV subsidiary, based on 3.3x FY27E EV/sales, discounted to present value. However, the standalone fair value has reduced by 10% as we factor in the valuation of only ICE-PV business.