M&M Q1 Review: Demand For Passenger Vehicles To Offset Weakness In Tractors, Say Analysts
Analysts see M&M's auto business offsetting the weakness in the tractor segment.
Analysts Mahindra & Mahindra Ltd.’s tractor dispatches to remain weak in the coming quarters, though partly offset by a strong order book in auto business and an expansion in electric vehicles.
New launches in sport utility vehicle segment, and its strong order book with waiting periods stretching up to 22 months, too, is will boost the company’s performance, the analysts said.
M&M’s net profit rose 11% sequentially to Rs 1,430 crore in the quarter ended June, but missed the consensus estimate. Year-on-year, the earnings jumped 67%.
M&M Q1 FY23 Highlights (QoQ):
Revenue rose 15% to Rs 19,613 crore.
Operating profit rose 20% to Rs 2,341 crore.
Operating margin expanded to 11.9% from 11.4%.
An improving supply of semiconductors and a higher share of top-end variants in the product mix will also support the automaker’s business, the brokerages said. But outlook for the company’s tractor business is seen to be uncertain because of higher input inflation for farmers and slowing government spending in the area.
Shares of M&M were trading 2.6% higher as of 10:15 a.m. on Monday. Of the 46 analysts tracking the company, 40 maintain a ‘buy’, four suggest a ‘hold’ and two recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 9.7%.
Here’s what brokerages have to say about M&M’s Q1 FY23 results.
Motilal Oswal
Auto business is firmly on growth path, led by new product portfolio but the outlook for the tractor segment is uncertain, particularly for second half of the current financial year.
Strong order book in SUV segment will boost performance with savings on raw materials providing support.
While auto business will be a key driver of growth for next two years, stability in tractor business would be crucial.
Newly launched Scorpio-N is bringing new customers as seen in the higher number of bookings from urban areas.
Retains ‘buy’ with a target price of Rs 1,400 a share, implying a potential upside of 11.5%.
Dolat Capital
Auto margin to improve gradually aided by favourable product mix and cost savings.
Tractor dispatches and pricing to remain weak in coming quarters due to high inventory with dealerships.
Strong order book in auto business, expansion in electric vehicles and prudent capital allocation to drive performance.
Maintains ‘accumulate’ with a target price of Rs 1,441 apiece, a potential return on investment of 15%.
IDBI Capital
Results in first quarter were in line with estimates as utility vehicle business continues to surprise on upside.
Despite capacity constraints, expect M&M to deliver compounded annual growth of 45% in volumes during the next two years.
Margins to improve from third quarter due to lag effect of commodity prices softening.
Current valuations extremely attractive, retaining ‘buy’ rating with a revised target price of Rs 1,765 a share, implying an upside of 43%.