IGI Logo

UV outlook strong; tractors stable

Q4 margin at 12.9%, as expected; ASP surprises positively

Mahindra & Mahindra’s(MM IN) Q4 revenue rose 11% YoY but dropped 1% QoQ to INR 251.1bn, ahead of our estimates. Standalone EBITDA surged 16% YoY and remained flat QoQ to INR 32.4bn, leading to an EBITDA margin of 12.9%, up 10bps QoQ despite a sharp drop in farm revenue mix. EBIT margin for farm improved 30bps QoQ to 15.8% (Q3 had a one-off impact of 0.7% due to World Cup ad spend) and auto EBIT margin impressed as it was up 50bps QoQ to 8.8%. Q4 EBIT/vehicle rose 10% QoQ for auto to INR 91,800 and for farm it rose 13% QoQ to INR 115,200 (owing to mix, pricing and lower marketing spends)

FY25 guidance: UV to see mid-to-high teen growth; Tractors 5%

M&M’s order book reduced to 220k units as on 1 May versus 226k as on 31 Jan 2023. The order intake for the new XUV 3XO was at ~50k in the first hour of booking opening, as per management. Through FY25-27, MM has earmarked a capex of INR 270bn for Auto business, INR 50bn for Farm and INR 50bn for services, taking the overall capex to INR 370bn. On the UV side, MM targets Q4FY25 exit production capacity of 64,000 vehicles per month. In FY25, MM targets mid-to-high teen growth for its SUV portfolio. And for tractors, it expects 5% growth in FY25. Q1 volumes should remain weak owing to elections.

Valuation: Reiterate Accumulate with a higher TP of INR 2,717

MM has made impressive strides in the PV segment, gaining 170bpsshare in FY24 to 10.9% (9.2% in FY23). With new refreshes and battery electric vehicle (BEV)model launches, expect MM to grow ahead of the industry (UV growth at 15% in FY25E). The response to new launches – Thar 5-door,XUV 3X0 and new BEVs – will be keenly monitored. Automotive mix in the near-term may weaken, given higher contribution from XUV 3XO, lower variants of XUV 700 and entry level pricing of new launches. The mid-single digit growth guidance for the tractor segment is encouraging.Monitor the cyclicality in the LCV segment but such dependency has dropped meaningfully for M&M.We expect margin to expand 100bpsin FY24-27E. MM’s margin delivery for the auto segment has been impressive. We reiterate Accumulate with a higher SoTP-TP of INR 2,717 from INR 1,860 as we increase our core EPS by 2-9% over FY25-26E; we roll forward to June 2026E. We value total automotive at ~27x P/E (from 20x) and the farm segment at 26x (from 18x) June 26E P/E with a subsidiary value of INR 396 (from INR 400).

Please refer disclaimer at Report
SEBI Registration number is INH000000933