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Motilal Oswal Report
While the outlook for Mahindra and Mahindra Ltd.'s tractors remains stable, we expect the auto business to be the key growth driver for the next couple of years. Despite deterioration in the mix, we estimate revenue/Ebitda/profit after tax compound annual growth rate of ~14%/20%/20% over FY23-25. The implied core price/earning for M&M stands at 15.6 times/14.1 times FY24E/FY25E earnings per share.
While the valuation is still attractive versus peers, M&M has seen a substantial rerating in FY23 as the stock is now trading in line with its five-year average core P/E (against discount of 30% earlier), driven by a strong performance in the SUV segment, market share gain in tractors and new launch pipeline in electric vehicles.
We maintain our 'Buy' rating with a target price of Rs 1,725 (based on Septembe-'25E SOTP).
Results highlights
M&M's Q1 FY24 revenue/Ebitda/adjusted profit after tax grew 22%/39%/98% YoY to Rs 240.6 billion/Rs 32.3 billion/ Rs 27.7 billion.
Volumes grew ~11% YoY, while average selling prices rose 10% YoY to Rs 798,800 /unit (our estimate: Rs 792,100/unit).
Gross margin expanded 130 bp YoY/30 bp QoQ to 24.7% (our estimate: 25.0%), further aided by operating leverage. Hence, Ebitda margin came in at 13.4% in Q1 FY24 (+160 bp YoY/+100 bp QoQ) versus estimate: 12.9%. Adjusted PAT grew 98% YoY to Rs 27.7 billion (our estimate: Rs 19.2 billion), driven by higher other income at Rs 9.7 billion (our estimate: Rs 3 billion) and lower tax.
Auto: Revenue grew 31% YoY to Rs 166.2 billion. Volume/ASP grew 17%/8% YoY. Profit before interest and tax margin came at 7.5% (versus estimate: 7.0%; +220 bp YoY/+40 bp QoQ).
Farm equipment segment: Revenue grew 5% YoY to Rs 74.6 billion. Volumes dipped 3% YoY but ASP rose 8% YoY. PBIT margin was at 17.5% (+160 bp YoY/+110 bp QoQ, inline).
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