LKP neutral on Mahindra & Mahindra; target of Rs 1312

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26 Aug, 2025 12:21

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LKP's report on Mahindra and Mahindra (MM)

"M&M’s volume growth is in a slow lane now. YTD October sales are in the red zone at 7% and 3% respectively for Auto and FES segment. With structural issues for the company like absence in the compact SUV segment has led to a sharp fall in its market share. In order to tackle this M&M will be launching 2-3 new SUVs in FY16. The delay in these launches beyond FY15 is leading to further erosion of market share. Though these launches will help the company to regain its market share somewhat, we believe that the upcoming competitive launches and the existing trio of Mobilio-Duster-Ecosport will give a tough time to M&M. Also from margin point of view it will be dilutive as mktg expenses will shoot up. On the FES segment side, low YTD growth has led us to trim full year growth. This also may hurt margin expansion prospects going forward. Any slowdown in infrastructure further may reduce the prospects for non agri demand for tractors. In line with this, we expect negative earnings growth for M&M in FY15 at 6% and 11% growth in FY16E on the back of volume recovery coming from new launches. We hence downgrade the stock on the back of trimming off the volume and margin estimates to NEUTRAL from BUY with a target price of Rs 1,312. Robust subsidiary valuation and the strong other income component in the standalone business coming from dividends from these subsidiaries is actually bolstering the intrinsic value of the stock", says LKP research report.

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