Buy Mahindra and Mahindra; target of Rs 1400: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra and Mahindra

M&M’s 1QFY23 EBITDA margin at 11.9% came slightly below our estimate of 12.2% owing to margin pressure in farm business (EBIT margin at 16% in 1Q vs 18-22% earlier), as company was unable to pass on inflated commodity cost. While the management expects tractor industry to report 3-5% growth in FY23 we anticipate outperformance on the back of its strong leadership position. Further, auto segment continues to be in limelight with 140k+ bookings (excl. 100k units of Scorpio-N), of which 79k units are for XUV700 (majorly for the top-end variants). Led by successful model launches, we believe that the company could regain 150-200bps of its lost SUV market share (from FY22 base of 15%) in the next 2 years. M&M is one of our preferred picks in auto space given (1) healthy turnaround in the segment with back-to-back successful launches in highly competitive SUV space (2) its proactiveness to leverage EV trend for value unlocking (3) strong leadership position in tractor industry and (4) well-played out capital allocation strategy.

Outlook

Reiterate ‘BUY’ at target price of Rs 1,400 (18x on Jun-24 core EPS and Rs 285 for subsidiaries).