M&M trades flat after hiking stake in aerospace subsidiary; analysts divided on stock performance

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Mahindra & Mahindra (M&M) stock opened flat on March 27 after the company increased its stake in its subsidiary, Mahindra Aerospace Private Limited (MAPL), from 91.6 percent to 100 percent. MAPL’s 7.68 crore shares were bought for a cash consideration of around Rs 31.5 crore.

M&M opened at Rs 1,140, almost a percent lower on the BSE from the previous close. At 10.20 am, it was trading at around the same level.

According to the exchange filing, MAPL is engaged in research design, manufacture, operation, assembly, and maintenance of various kinds of aircraft, aircraft components and aerostructures directly through its subsidiaries. Its turnover for FY22 was Rs 98.21 crore.

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BofA Securities has downgraded the stock to “neutral”, with a target price of Rs 1,320. According to the brokerage, the stock is likely to go through some time correction and there doesn’t seem to be any meaningful catalyst to significantly increase the price.

Motilal Oswal Financial Services, however, expects the stock to go up by more than 33 percent with a target price of Rs 1,525 given in its recent report.

The brokerage estimates a 20 percent CAGR in EPS and 2 percentage point improvement in the company’s ROCE over FY23-25, and also likes the cheap valuation of the stock.

M&M has been raising investments to further its electrification ambitions. It recently raised around Rs 600 crore from International Finance Corporation (IFC) for the company’s last-mile mobility subsidiary NewCo. NewCo will help push electrification of affordable small commercial vehicles.

In 2022, M&M managed to get a Rs 1,925-crore commitment from British International Investment for its electric-vehicle company EVCo. M&M is to transfer its electric four-wheeler assets to EVCo and this is being done in phases.

Also read: Is M&M's new EV business value accretive?

M&M is also exiting its non-core businesses to invest in its core businesses, according to analysts. Recently, it reduced its holding in Mahindra CIE from 9.25 percent to 3.19 percent at Rs 357.39 percent or nearly at a 10 percent discount to the prevailing market price.

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