Buy Mahindra and Mahindra; target of Rs 851: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Mahindra and Mahindra

We believe the decision of calling off JV between MM and Ford is positive given very limited scope for new product development along with sourcing related synergies (Click here for our earlier report on MM-Ford JV). In fact, amount saved from not investing (envisaged to be Rs14bn) can now be better utilized in their SUV and EV segment. On the other hand, with SsangYong (SYMC) now under ARS, MM is confident to strike a deal with potential investor by Feb end. We are assertive on MM as management has again reinforced investors that capital allocation remains the key focus (target RoE of >18). On the auto side, MM plans to sharpen focus on its core SUV products and succeed in establishing a strong presence in EV as well. We expect farm and UV segment volumes to grow at ~5% and 9% CAGR over FY21-23E led by new launches. We also built in EBITDA/PAT CAGR of ~9%/12% over FY21-23E. M&M+MVML margins expected to remain elevated at ~14% over FY22-23E as tractor segment contribution remains elevated at ~44% (v/s 37% in FY18-20).

Outlook

We reiterate BUY with revised SoTP based price target of Rs851 (v/s Rs826, largely led by increase in subs value).

For all recommendations report, click here

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