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An all-round beat led by better ASPs

Capex guidance significantly enhanced for next three years

* MM’s overall performance in 4QFY24 beat our estimates on all fronts. Auto margins improved 170bp YoY to 8.8% (est. 8%), while FES margins improved to 15.8% (+60bp YoY) despite a decline in volumes due to cost optimization and benign RM costs. Strong demand momentum for its UVs (new launches + order backlog) and an expected revival in tractor demand (post base correction in FY24) are likely to be the key growth drivers over FY24-26E.

* We raise our FY25E/FY26E EPS by 6%/11% to factor in better volumes and higher ASP. Reiterate BUY with a TP of INR2,720 (based on FY26E SOTP).

FES margin expansion due to benign RM and other costs

* 4QFY24 revenue/EBITDA/adj. PAT grew 11%/16%/3% YoY to INR251.1b/INR32.4b/INR20.4b. FY24 revenue/EBITDA/adj. PAT grew 16%/24%/35% YoY.

* Revenue grew 11% YoY to INR251.1b (est. INR235.1b) as volumes grew ~3% YoY. ASP grew 8% YoY to INR875.1k/unit (est. INR821.2k/unit).

* Gross margin expanded 150bp YoY to 26.5% (est. 24.3%).

* Higher other expenses (+80bp YoY) restricted EBITDA margin at 12.9% (+50bp YoY/+10bp QoQ; est. 11.9%).

*  Aided by higher-than-estimated other income, adj. PAT came in at INR20.4b (est. INR18b), up ~3% YoY.

* MM declared a final dividend of INR21.1/share for FY24 (INR16.3/share in FY23).

* FCFF stood at INR64.5b (vs. INR57b in FY23) due to better operating cash flows of INR112.8b (vs. INR91.3b in FY23) despite higher capex of INR48.3b (vs. INR34.3b in FY23).

* Auto: Revenue rose 20% YoY to INR199.1b. Volume/ASP rose 13%/5.5% YoY. PBIT margin came in at 8.8% (+170bp YoY/+50bp QoQ; est. 8%).

* FES: Revenue declined 13% YoY to INR52.3b. Volumes fell 20% YoY, but ASP grew 9% YoY. PBIT margin stood at 15.8% (-60bp YoY; est. 15.2%).

Highlights from the management commentary

* Auto: MM has maintained its previous guidance of mid-to-high teens growth in FY25, led by new launches (XUV 3XO, Thar 5 door) and product interventions (launch of lower variants of XUV700).

* Farm: MM expects tractor industry volumes to grow 5% YoY in FY25, aided by above-normal monsoon as predicted by IMD. 1HFY25 is likely to remain weak due to ongoing elections, but 2HFY25 should see a notable pickup. Apr’24 volumes are better than what MM expected.

* Capex for autos/farm would be INR270b/INR50b over FY25-27 (Auto ICE/EV=INR140b/INR120b), significantly higher than INR131b/INR26b during FY22-24.

Valuation and view

* We have raised our EPS estimates by 6%/11% for FY25/FY26. We estimate MM to post a CAGR of ~17%/20%/16% in revenue/EBITDA/PAT over FY24-26. While MM has outperformed its own targets on earnings growth and achieved RoE of 18% in FY24, it maintains long-term guidance of 18% RoE as it has now sharply raised its capex guidance to INR370b for FY25-27 from INR195b during FY22-24.

* The implied core P/E for MM stands at 24/19x FY25E/FY26E EPS, which is still attractive vs. peers. Maintain BUY rating with a revised TP of INR2,720 (based on FY26E SOTP).

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