M&M share price jumps 5% after Q3 earnings; is the stock buy-worthy?

Mahindra and Mahindra Q3FY24 result

During market hours on Wednesday, Mahindra and Mahindra reported a consolidated net profit of ₹2,658.40 crore for Q3FY24 against a profit of ₹2,676.56 crore in the same quarter last year.

Total income from operations, on a consolidated basis, for the quarter under review stood at ₹35,299.39 crore against ₹30,621.28 crore year-on-year (YoY).

However, the company’s standalone PAT (profit after tax) for the quarter under review surged almost 61 per cent YoY to ₹2,453.98 crore against ₹1,528.06 crore in Q3FY23.

Standalone revenue from operations stood at ₹25,288.51 crore for Q3FY24, up 17 per cent against ₹21,653.74 crore YoY.

Standalone EBITDA jumped 10 per cent YoY to ₹3,590 crore.

The stock ended 0.71 per cent higher on Wednesday. 

Is the stock buy-worthy?

Most brokerage firms retained their positive views on the stock after the company’s December quarter scorecard.

Kotak Institutional Equities retained its ‘add’ call on the stock with a target price of ₹1,800 as it said M&M standalone EBITDA was in line with its estimates as better-than-expected ASPs (average selling prices) were offset by weaker gross margins.

“Automotive division demand trends remain healthy, while we expect the tractor volumes demand to recover post Q1FY25E. The company continues to execute well by maintaining the leadership position in all the three segments, improved return ratio as well as cash flow generation and well-preparedness for EV transition,” said Kotak.

Nuvama Wealth Management has maintained a ‘buy’ call on the stock and raised the target price to ₹2,080 from ₹2,010 earlier.

The brokerage firm expects revenue and core earnings CAGR at 13 per cent and 18 per cent respectively over FY23–26E which is expected to sustain RoIC (return on invested capital) at 35 percent-plus.

“Stock catalysts include production ramp-up and incremental announcements about EVs,” Nuvama said.

Motilal Oswal Financial Services also has retained a buy call on the stock with a target price of ₹2,005.

The brokerage firm underscored that M&M’s auto business is expected to be the key growth driver for the next couple of years on the back of its healthy order backlog and new launches.

“The near-term outlook for tractors remains weak, but we expect tractor demand to revive to mid-single digit growth amid favourable indicators. We estimate a CAGR of nearly 12 per cent, 15 per cent and 16 per cent in revenue, EBITDA, and PAT, respectively, over FY23-26,” Motilal Oswal said.

Brokerage firm Sharekhan by BNP Paribas also maintained its buy rating on the stock and revised the target price upward to ₹1,853.

Sharekhan believes M&M’s pan-India presence along with in-house NBFC and selective product interventions would support it to sustain its high market share in the tractor market and counter the downturn.

The brokerage firm pointed out that M&M is consistently focusing on improving its operating profitability. The company’s EV projects are on track.

“Historically M&M’s operating performance has largely depended on the tractor segment; however, we believe the auto segment is expected to also support its operating performance in the coming years due to increasing volumes going ahead. Post incorporating Q3FY24 performance in our estimates, we maintain our buy rating on the stock with a revised target price of ₹1,853 (16.5 times its FY26E core EPS of ₹76 + ₹384 for listed subsidiaries + ₹208 for the EV business) due to a healthy order book in the PV segment, market leadership in the tractor segment, opportunity to grow in the farm machinery segment, and its road map to play in the EV space,” Sharekhan said.

“However, the uneven distribution of monsoons can affect our volume estimates for M&M’s farm equipment segment. Unsuccessful new launches and volatility in raw-material cost trends can also impact our projection adversely. Any deviation from the capital-allocation strategy would raise concerns about its return ratios,” Sharekhan added.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 15 Feb 2024, 10:59 AM IST