M&M Q3 Review: Analysts Flag One Risk As New Launches Drive Growth

Mahindra & Mahindra Ltd.’s growth will be led by the automotive segment with the success of recent launches and strong demand, but an increasing risk of slowdown in tractors may prove to be a drag, analysts said.

The strong response to the company’s recently launched SUVs will ensure volume growth in the coming years, but an upcycle in trucks over the last four to five years may give way to muted growth in the coming financial year, they said.

The company had over 2.66 lakh open bookings for SUVs as of Feb. 1, reflecting robust demand, M&M had said after the third-quarter earnings announcement. In the quarter ended December, the company’s consolidated net profit jumped 25% aided by higher sales in the automotive business and low-base of last year due to limited production of cars amid chip shortage.

However, the expected muted growth in tractors is seen as partially offsetting the healthy outlook on SUVs.

"We expect a weakening mix and a potential slowdown in tractors to pose a headwind for M&M’s margins," brokerage Jefferies said in a report.

While the company raised growth estimates for the segment to 10% from 5% earlier for the current financial year, it cautioned the industry could see a cyclically muted growth ahead.

Jefferies expects M&M’s tractor volumes to decline 13% in FY24.

Shares of the company were trading 1.9% lower as against a 0.6% fall in the benchmark Nifty 50 at 10.22 a.m.

Here’s what brokerages said about M&M’s Q3 FY23 results:

• Maintains a 'buy' rating with a target price of Rs 1,718 a share, a potential upside of 26%.

• Raises SUV volume estimates by 2% for the next two financial years amid gains in market share across segments.

• Expect re-ratings to continue to be driven by market share gains in SUVs and improvements in return on equity as capital allocation actions get implemented.

• Growth in farm implements, the next generation of electric vehicles, and investments are positives.

• Retains an 'underperform' rating with a price target of Rs 1,165 per share, a potential downside of 15%.

• Autos continue to do well but will be insufficient to drive the stock up if tractors enter a downturn.

• See the high risk of a slowdown in tractors after an extended up-cycle.

• Find the risk-reward unfavourable as the stock seems to be over the long-term average of price-to-earnings multiples of its core business.

• Maintains a 'buy' rating with a target price of Rs 1,550 per share, implying a likely profit of 14%.

• Expects the auto business to be a key growth driver for the next two years, led by a healthy order book.

• Stock is cheap compared to peers but has been re-rated in the last two quarters.

• Upgrade earnings-per-share estimates by 3% for FY23 and FY24 due to higher other income.

• Maintains a 'buy' rating with a target price of Rs 1,590, implying an upside of 16.4%.

• There’s a long gap in model launches after the recent unveiling of the XUV400.

• EVs remain a key focus area, with deliveries of the XUV400 beginning this quarter.

• Going forward, expect 12% compounded annual growth in revenues over the next two years.