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Healthy revenue with strong volume growth

Mahindra & Mahindra Ltd (M&M) manufactures automobiles, farm equipment, and automotive components. It also manufactures agricultural tractors, implements, and engines.

* M&M’s consolidated revenue grew 24.8% YoY (+5.7% QoQ) to Rs. 32,366cr in Q4FY23, driven by strong performance in the automotive and farm equipment segments.

* EBITDA grew 30.2% YoY (+6.0% QoQ) to Rs. 5,568cr despite higher cost of sales and operating expenses. Consequently, EBITDA margin improved 70bps YoY (flat QoQ) to 17.2% in Q4FY23. Adjusted profit after tax (PAT) increased 34.0% YoY (+19.3% QoQ) to Rs. 2,605cr.

* M&M’s topline grew at a healthy pace owing to a strong demand momentum, aided by product launches. Improved margin, market share, and healthy pipeline are expected to further increase the company’s financial performance. Therefore, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 1,486 based on 15x FY25E adjusted EPS.

Automotive and farm equipment drive revenue

M&M’s revenue grew significantly by 24.8% YoY to Rs. 32,366cr in Q4FY23. The revenue growth was driven by strong performance of the automotive business, up 34.0% YoY to Rs. 16,742cr, and the farm equipment business, which increased 29.9% YoY to Rs. 8,023cr. Additionally, financial services rose 20.3% YoY to Rs. 3,420cr. The automotive segment sold 1,89,227 units, up 21.4% YoY, while farm equipment volume rose 23.7% YoY to 89,128 units. EBITDA grew significantly by 30.2% YoY to Rs. 5,568cr in Q4FY23, supported by reduction in cost as a percentage of revenue. EBITDA margin was up 70bps YoY to 17.2% in Q4FY23. Adjusted PAT improved 34.0% YoY to Rs. 2,605cr in Q4FY23.

Capital investment in EV and price hikes to aid future performance

The company has increased its capex allocation to Rs. 15,900cr from Rs. 15,075cr for FY22-24. M&M plans on utilising the funds for Electric Vehicle (EV) business owing to shift in customer requirement, along with an increased demand for EVs. Additionally, it has also increased prices for SUV’s during FY23 as company upgraded interior and new safety features. The EV business and the recent price hikes are expected to provide support for the company’s overall performance.

Key concall highlights

* In FY23, the company had repaid debt of around Rs. 2,300cr; it will continue to focus on an optimal capital structure.

* Market share of the farm equipment business improved to 40.7% in Q4FY23 from 39.4% in Q4FY20, aided by strong leadership, launches, and network expansion.

* As on 1 May 2023, the company had open UV bookings of around 292,000 units.

Valuation

M&M has reported a healthy quarter, aided by robust performance in the automotive and farm equipment businesses. The company’s strong UV performance and healthy backlog are expected to support overall performance in the near term. In line with its aim of investing in new production and battery assembly lines, M&M opened a Treo manufacturing line at its Haridwar plant, which bodes well for future performance. Hence, we reiterate our BUY rating on the stock, with a rolled forward target price of Rs. 1,486 based on 15x FY25E adjusted EPS.

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