Motilal Oswal is bullish on Mahindra and Mahindra has recommended buy rating on the stock with a target price of Rs 576 in its research report dated June 02, 2020.
Motilal Oswal 's research report on Mahindra and Mahindra
Mahindra & Mahindra's (MM) senior leadership is in midst of a generational shift, at a time when all its key businesses are facing cyclical or structural challenges. While the cycle for tractors should turn positive in the near term and for LCVs too in the not so distant future, the new CEO would have to address two major issues - (a) restore its positioning in the fast growing SUV segment, and (b) circumvent the drag of underperforming subsidiaries in the core/non-core businesses. We believe MM's valuations reflect the challenges of the Passenger UV business as well as no major changes on capital allocation policy. Any positive surprises in the SUV business, positive evolution of the Ford India JV or correction of capital allocation by the new CEO should act as re-rating triggers.
We are lowering our EPS for FY21/22E by ~22%/4% to factor in the supply- side issues for Tractors and weaker volumes for Autos in FY21. We are now building in volume growth of 0%/12% for Tractors, -20%/22% for LCVs and -17%/10% for SUVs for FY21/22E. Our Jun'22E-based SOTP TP is ~INR576/share - an upside of ~25%. At our TP, implied Core P/E is ~13.6x (v/s 5-year average core P/E of ~15.9x and 10-year average of ~14.3x). Maintain Buy.
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