M&M Q2 Review: Utility Vehicle Business To Drive Growth With Strong Orderbook, Say Analysts

The company has an orderbook of 2.6 lakh vehicles comprising 80,000 units of XUV700 and 1.3 lakh units of Scorpio N.

<div class="paragraphs"><p>Newly launched Mahindra Scorpio N. (Source: Company website)</p></div>
Newly launched Mahindra Scorpio N. (Source: Company website)

The utility vehicles segment will be the key driver of Mahindra & Mahindra Ltd.'s growth in the next two years and possibly surprise street's estimates, analysts said.

That is because the Thar SUV maker’s passenger vehicle business is on a firm growth path with strong orderbook, line-up of product launches, cyclical growth in industry volumes, and better profitability including market share gains, they said.

The company has an orderbook of 2.6 lakh vehicles comprising 80,000 units of XUV700 and 1.3 lakh units of Scorpio N. The company’s profitability will also improve helped by price hikes and end of the introductory price for these popular models, the brokerages said.

In the tractor business, however, the management has maintained a growth guidance of 5% for the current fiscal considering the high base of the last year’s second half. This indicates a weak growth in the second half for the division given the business grew 12% till October-end.

M&M beat street’s estimates in the quarter ended September on higher sales and remained revenue market-share leader in the SUV space.

Shares of the company were up 0.78% as of 10:20 a.m., while the benchmark Nifty 50 was marginally down 0.09% on the NSE.

Here’s what brokerages said on M&M’s Q2 performance:

Motilal Oswal

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

  • Strong order backlog in SUVs will boost performance, supported by capacity expansion and raw material cost savings.

  • Raise FY23/FY24 standalone earnings per share estimates by 4% to factor in strong realizations in auto business.

  • Maintain ‘buy’ rating with a target price of Rs 1,470 per share, implying a return on investment of 14%.

Dolat Capital

  • Automotive margin in FY24 should jump sharply led by end of introductory pricing of XUV700 and Scorpio-N.

  • Apart from strong model cycle in SUVs, the company should also benefit from a cyclical growth in light commercial vehicle and three-wheeler volumes.

  • Tractor dispatches and pricing continue to be weak in coming quarters due to high channel inventory with dealers.

  • Expect strong reservoir level, encouraging Rabi sowing and pre-election spending will improve volume growth outlook for tractor segment in FY24.

  • Maintain ‘buy’ with a price target of Rs 1,635, a potential profit of 27%.

Emkay Global

  • Better scale and improved net pricing may lead to Ebitda margin expansion to 12.7% in FY25 from 12.3% in FY22.

  • Raise our FY23-FY25 earnings per share estimates by 2-6% factoring in higher margin and other income assumptions.

  • Electric vehicles remain a key area with deliveries of XUV400 expected in the fourth quarter.

  • Retain ‘buy’ rating with revised target price of Rs 1,530 from Rs 1,470 earlier, a potential upside of nearly 19%.

Axis Capital

  • Improving brand perception, market share gains and better profitability will drive SUV business form strength to strength.

  • Tractor business will grow profitably at a steady pace.

  • Commodity tailwinds and higher volumes will further improve margins in second half of current fiscal.

  • Reiterate ‘buy’ with target price of Rs 1,570 per share, implying an upside of 22%.