Summarize

Simplifying... Inshort

Mahindra & Mahindra's stock hit an all-time high, jumping 8% after Jefferies and other financial institutions raised their future earnings estimates.
Despite some downgrading the stock, the company's strong revenue growth, stable margins, and promising outlook for electric vehicle transition have kept analysts optimistic.
The demand for M&M's SUVs and expected tractor sales revival are seen as key growth drivers in the coming years.

Was a long read? Making it simpler...

Next Article

Jefferies upgraded M&M to 'buy' and raised the target price to ₹2,910

Mahindra & Mahindra's stock jumps 8% to all-time high

By Mudit Dube

May 17, 2024

12:18 pm

What's the story

Mahindra & Mahindra (M&M) shares saw a significant surge on Friday, rallying up to 7.7% to hit a new high of ₹2,554.75. This increase was spurred by the company's impressive March quarter performance, which exceeded Dalal Street estimates on several fronts. Global brokerage firm Jefferies upgraded M&M to 'buy' and raised the target price to ₹2,910, attributing this to the strengthening of M&M's SUV portfolio and the late-stage downturn of tractors.

Price adjustments

Financial institutions adjust target prices for M&M

Jefferies also increased its FY25-26 EPS estimates by 16-21%, noting that M&M's valuations are still 20% below the blended peer average. Other financial institutions followed suit, with Goldman Sachs setting a target price of ₹2,700 and Morgan Stanley raising its targets to ₹2,665. However, CLSA downgraded the Nifty stock to a 'sell' rating from 'outperform', arguing that the stock is fairly priced after the recent rally.

Financial performance

M&M reports revenue growth and stable margins

M&M reported an 11% year-on-year (YoY) revenue growth in the March quarter with stable margins quarter-on-quarter (QoQ) at 12.9%. The company experienced an improvement in auto margins by 170bp YoY to 8.8%, while FES margins improved to 15.8% (+60bp YoY), despite a decline in volumes due to cost optimization and benign raw material costs. This performance has led analysts at Kotak Equities to maintain a positive outlook on M&M's prospects, observing that it is well-prepared for the EV transition.

Future outlook

Brokerages increase EPS estimates, highlight M&M's growth prospects

Kotak Equities raised its FY2025-26E EPS estimates by 12-14% based on higher volumes and EBITDA margin, setting a target price of ₹2,550. Motilal analysts pointed out the strong demand momentum for M&M's SUVs and an expected revival in tractor demand as key growth drivers over FY24-26. They stated, "We have raised our EPS estimates by 6%/11% for FY25/FY26. We estimate M&M to post a CAGR of ~17%/20%/16% in revenue/EBITDA/PAT over FY24-26," while setting a target price of ₹2,720.