Buy Mahindra And Mahindra; target of Rs 2740: LKP Research

LKP Research's research report on Mahindra And Mahindra

M&M reported decent Q4 FY24 numbers wherein the topline was reported at ₹254 bn, a growth of 12.7% yoy and flattish qoq. Volumes rose by 9.3% yoy and realizations went up by about 3.1% yoy. Automotive division revenues came in at ₹199 bn, an increase of 20% yoy led by success of Thar, Bolero, XUV & Scorpio families with ~220K order book. Automotive segment reported strong EBIT margins, which rose by 170 bps yoy and 50 bps qoq to 8.8% on positive operating leverage, stable commodity basket and model mix. Tractor margins came at 15.8% which was 30 bps up qoq and lower 60 bps yoy as lower monsoons and unseasonal rains led to fall in volumes but margins improved qoq on lower RM basket costs. Overall EBITDA margins therefore came in higher at 14% (flattish qoq and 160 bps up yoy). Lower other income coupled with higher tax rate, led PAT to come in 4.3% up yoy at ₹21.6 bn. On a sequential basis, the growth was 12% lower. Overall results were quite decent despite tractor business being on weak wicket.

Outlook

We maintain BUY rating on attractive valuations; SoTP-based target price now stands raised at ₹2,740 (₹2,364 core business valued at 15x FY 26E earnings + subsidiary valuation of ₹376) in line with our assumptions of margin improvement on increase in volumes and value of SUV where we expect market share to bounce back on new launches, 3Ws and LCV segments, production increase offering operating leverage, price hikes and prudent cost reduction measures. We believe FES segment also to revive in FY 25E on expectations of above normal monsoons by the weather departments.

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