M&M’s strong Q2 results get thumbs up from analysts; should you buy the stock?
M&M’s revenue growth during the quarter ended September 2023 was driven by volumes growth of 11% YoY, while Average Selling Prices (ASP) grew 5% YoY.
The company’s automotive segment saw a healthy double-digit growth during the festive season, while the farm equipment segment’s performance was muted as its revenue fell 0.4% YoY.
Analysts maintained a bullish view on M&M on the back of strong earnings growth and attractive valuations of M&M shares. Here’s what brokerages said:
“While the outlook for tractors remains stable, we expect the Auto business to be the key growth driver for the next couple of years,” brokerage firm Motilal Oswal Financial Services said.
Despite deterioration in the mix, the brokerage estimates revenue, EBITDA and PAT CAGR of 15%, 19% and 21% over FY23-25E.
“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 a new launch pipeline in EVs,” Motilal Oswal said.
The brokerage reiterated its ‘Buy’ rating on the stock with a target price of ₹1,775 per share.
LKP Securities expects strong SUV run to continue as the semiconductor issue is minimal. Within the Auto sector, the robust order book of Scorpio N variants, Thar and XUV family should assist SUV growth in coming quarters. It expects low single digit growth for the FES segment on waning tractor cycle and visible El Nino impact. New launches may provide some fillip to FES.
LKP Securities believes M&M has identified several growth gems, which can leverage the core strength of M&M group and accelerate the growth for the company over the medium term. RBL stake acquisition and Temasek stake sale are both positive, according to the brokerage.
It maintained a ‘Buy’ rating on the stock on attractive valuations, while its SoTP-based target price stands at ₹1,801 in line with assumptions of margin improvement on increase in volumes and value of SUV where it expects market share to bounce back on new launches, three-wheelers and LCV segments, growth in FES, production increase offering operating leverage, price hikes and prudent cost reduction measures.
Choice Broking
As chip shortage and other supply chains are easing off and companies are also expanding the capacity, Choice Broking expects M&M’s automotive segment to register healthy growth in coming years. Additionally, in the tractor segment, a series of launches are underway in various categories, which will support the growth of the Farm Equipment segment. Further, launches in the Farm machinery segment (high margin) are also expected to do well going forward.
“We expect Standalone revenue/EBITDA to grow at 14.7/22.5% CAGR over FY23-26E. Additionally, management’s capital allocation to remain on core business will further create shareholders wealth in coming years,” Choice Broking said.
It maintained an ‘Add’ rating on the stock with a target price of ₹1,743 per share.
Prabhudas Lilladher
Overall, standalone numbers were mixed in performance missing on revenue while in line margins. Automotive division saw significant improvement in margin performance and came higher than expected while weakness in tractor volumes and likely higher contribution from the margin dilutive farm machinery segment and launch costs from the mega launch of Oja and Naya Swaraj impacted margins for the Farm Equipment segment during the quarter, said Himanshu Singh – Research Analyst, Prabhudas Lilladher.
The brokerage has a ‘Buy’ call with a target price of Rs 1,775 per share.
At 10:10 am, M&M shares were trading 0.09% lower at ₹1,525.30 apiece on the BSE
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