M&M Q1 Results Review: Valuation Still Attractive, Has Headroom For Growth, Say Analysts

Shares of Mahindra & Mahindra Ltd. are still attractive compared to its peers even as the stock was re-rated in the ongoing fiscal driven by a strong performance in core businesses, analysts said.

The company's profit nearly doubled in the quarter ended June, led by higher sales and an improvement in the product mix.

The valuation is still attractive compared to that of peers, despite the stock trading in line with its five-year average core price-to-earnings ratio, against a discount of 30% earlier, according to Motilal Oswal.

M&M Q1 FY24 Highlights (Standalone, YoY)

• Revenue up 23% at Rs 24,368 crore (Bloomberg Estimate: Rs 23,644 crore)

• Net profit up 98% at Rs 2,774 crore (Bloomberg Estimate: Rs 1,950 crore)

• EBITDA up 46% at Rs 3,547 crore (Bloomberg Estimate: Rs 3108.44 crore)

• Margins at 14.6% vs 12.22% (Bloomberg Estimate: 13.1%)

Automotive sales rose 21% to their highest-ever first quarter volumes of 1.86 lakh units, but tractor sales fell 3% to 1.15 lakh units.

As of Aug. 1, the automaker's open bookings stood at 2.81 lakh units, reflecting visibility for future deliveries.

The issues with the availability of semiconductors have been largely resolved, and the company's producing at full capacity as of now, Shah said in a press conference to discuss June quarter results.

While the production capacity has been ramped up to 39,000 per month, bookings continue to outpace it. The company expects to further increase the capacity to 49,000 per month by the end of the ongoing fiscal.

Shares of the company rose 2.72% to Rs 1,504.50 apiece as of 10 a.m., compared with a 0.14% gain in the benchmark Nifty 50.

Of the 43 analysts tracking the company, 38 maintain a 'buy', four suggest a 'hold', and one recommends a 'sell', according to Bloomberg. The average of 12 month price target given by analysts implies an upside of 9.6%.

Here's what analysts' had to say about the Q1 performance:

Motilal Oswal

• Maintains 'buy' rating with a target price of Rs 1,725 a share, implying an upside of 18%.

• M&M should outperform SUV and tractor divisions, helped by new launches and a presence in high-end products.

• Expect the auto business to be a key growth driver for the next two years.

• Raise earnings-per-share estimates for FY24 and FY25 by 10% and 5%, respectively, on account of better Ebitda and higher other income.

Nirmal Bang

• Maintains 'buy' rating with target price of Rs 1,713 per share, a potential profit of 17%.

• Factoring-in 9% compounded volume growth over FY23-FY25 for auto segment, led by new capacity addition and strong order book.

• Estimates 10% compounded growth in revenue over FY23-FY25.

• Key risks include sharper slowdown in tractors and investments in unrelated businesses.

Dolat Capital

• Reiterates 'buy' with target price of Rs 1,710, implying an upside of 17%.

• Increase earnings-per-share estimates by 9% for FY24-FY25 on expansion in margin and rise in average selling prices.

• The stock will trade at a premium to historical multiple as company moves higher to its guided return-on-equity target of 18%.

• Expect automotive margin to rise led by larger scale of operations.

Choice Broking

• Maintains 'add' rating with a target price of Rs 1,653 a share, with a potential upside of nearly 13%.

• New launches will support growth in the farm equipment segment.

• Expect the automotive segment to register healthy growth in the coming years.

• An improvement in chip availability augurs well for capacity expansion.