Buy Mahindra and Mahindra; target of Rs 703: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Mahindra and Mahindra

We upgrde M&M to BUY (v/s Hold) led by increasing focus on capital allocation, plans for loss-making subsidiaries (exit or turnaround) and preference to rural exposure. Its emhasis placed on the core intensifies with active search of partner for Sangyong, no bid for truck supply contract in US (under MANA), GenZ exit. We believe these are initial steps to fix ROEs with likely more consolidation. Furthermore, FES segment has strong outlook led by healthy farm sentiments where as widened auto segment losses should improve 2Q onwars. The management also hinted that stake sale in EV business could be an additional catalyst for value unlocking in unlisted subsidiaries. With improved rural outlook, we increase consol EPS by 4%/8% as we expect contribution of high margin FES segment to remain elevated.

Outlook

This has resulted in 50bp/70bp uprade in FY22/23 margins. Hence, we upgrade the stock to BUY with revised SoTP based TP of Rs703 (from Rs531). We value core auto business at 14x (v/s 13x to factor in for superio mix and outlook) plus subsidiary value of Rs158 at 40% holdco discount (v/s 50% earlier).

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