Buy Mahindra and Mahindra; target of Rs 1740: Prabhudas Lilladher

Prabhudas Lilladher's research report on Mahindra and Mahindra

We change our FY24/FY25 core EPS estimates by 5%/0%/-0.7% to factor in higher SUV volumes, largely in-line margin performance and marginal decrease in ASP. M&M’s 2QFY24 revenue came below our and consensus estimate likely led by lower-than-expected ASPs in the Automotive segment. EBITDA margin at 12.6% came below our estimate of 12.9%, and was largley in-line with consensus. Management noted that FES margins had one-time impact from bunched-up launch costs and operating de-leverage. Suppply issues have larely normalised and MM is on track to reach 49k units SUV capacity for FY24 (at 42k at present). MM’s SUV orderbook remains robust helped by good demand for its products, despite ramp-up in production. We believe M&M should benefit from (1) growing customer preference for SUV, (2) ramp-up in production to fulfill strong demand and order book, (3) market share gains in the tractor industry from new segments, and (4) rampup in EV portfolio starting 2025.

Outlook

Also, benign RM, operating leverage and end of volume of introductory priced model will benefit margins (we buil-in ~150bps expansion over FY23-26E). Retain ‘BUY’ with TP of Rs 1,740 (Rs. 1,775 earlier) valuing at 18x on Sep-25E core EPS and Rs 326 for subsidiaries.

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