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Decent performance in Q2, segmental drivers remain strong

M&M reported decent Q2 FY24 numbers wherein the topline was reported at ?257 bn, a growth of 16.6% yoy and 5.8% qoq. Volumes rose by 20% yoy and realizations went up by about 7.1% yoy. Automotive division revenues came in at ?184 bn, an increase of 25% yoy led by success of new launches –Thar, Bolero Neo, XUV 7oo, Scorpio variants and XUV 3oo & 4oo. M&M started rapidly catering to the order backlog as chip shortage issue softened. Automotive segment reported strong EBIT margins, which rose by 150 bps qoq, (290 bps yoy) to 9% due to positive operating leverage, stable commodity basket and model mix. Tractor margins came slightly soft at 16% which were 150 bps lower qoq and flat yoy as lower monsoons led to lower volumes, especially in South and West. Overall EBITDA margins therefore came in at a strong 17.6% (300 bps jump qoq and 130 bps yoy). Higher other income was more or less offset by higher tax, which led PAT adjusted for exceptional items in both the quarters to come in 51% up yoy at ?35.9 bn. On a sequential basis, the growth was 29% higher

SUV demand remains strong

M&M witnessed 24% yoy and 15% qoq growth in the SUV segment volumes during the quarter. The company has received an excellent response for the new Scorpio N (incl. Classic) with 119K open bookings since its launch (~17 k per month). The Thar and XUV 7oo launches are still having huge order book of ~10K and ~9K per month respectively, as their waiting periods are reducing now. Neo Bolero was launched in July 2021 which already has received strong order bookings (~9K monthly bookings for the entire Bolero family) and has made robust inroads into Southern markets where the earlier Bolero model was not having a wide presence. Also XUV3oo and 4oo combined have got a very strong response with 6K demand per month, while XUV 4oo and 3oo open bookings stood at 10K units p.m. The total order bookings stood at ~286K currently. With this, the company was able to increase its SUV revenue market share at 19.9% from 20.2% qoq. Competition is intensifying in the hot SUV segment with MSIL launching an array of launches, thus M&M conceding its #1 position to MSIL (23.3% market share in Q2). M&M might turn once again market leader as the company plans to launch its EV and ICE variants (4 door and 5 door Thar) this fiscal along with several other new products such as BE.05, XUV.e9 and BE-RALL-E for the first time in India. From existing ICE capacity of 39K p.m, the company plans to expand it upto 49K p.m as FY24 exit capacity, which if required can be scaled up further. M&M plans to launch 5 new SUVs this year as supply constraints are easing. We expect SUVs to register 22%/16% growth in FY24E/FY25E respectively.

Out of the planned portfolio, there will be a strong presence of EV products (8 new products starting from CY 24), for which ?30 bn investment is planned. The company plans to unveil its new INGLO platform for EV products soon. M&M has planned to increase its capex by ?19 bn mainly for the EVs. M&M is looking for building partnerships with various EV players (Volkswagon) globally and build products such as XUV 7oo EV and XUV 62o EV. The company has tied up with British International Investment (BII) to invest up to $250 mn in new EV Co to be setup at a valuation of up to $ 9.1 bn. Recently even Temasek invested ?12 bn (stake purchase ranging 1.49% to 2.97%) in M&M’s EV SUV business at valuation of ?806 bn, which seems positive to us. Ulimately after 1-1.5 years MM is planning to launch an altogether new company for Born Electric (EV vehicles) under one roof called Mahindra Electric and post its financials separately.

Also on the CV side, the company is launching the Bolero Maxy Pick-up soon and has plans to launch several CVs and pick-ups over the next 5 years with a capacity expansion plan for each of the existing model in place. Also with chip shortage issue getting resolved now, we believe M&M will be able to cater to this burgeoning demand in FY24-25 and report solid growth thereby in line with reduction in waiting period. In the LCV business, M&M has gained about 280 bps yoy and 50 bps qoq market share yoy to reach its highest ever quarterly market share of 49.6%. The recent launch of Supro Profit Truck has strengthened offering in 0-2T 4W segment. M&M launched Jeeto CNG and Maxx Pick up in the LCV segment resulting in strong market share growth. We expect 8%/7% volume growth in CVs in FY24E/25E

M&M has garnered 61% market share in the e-3W space with the success of E-Alfa, Jeeto, Treo Auto and Treo Zor launched few quarters ago. A variant of Treo-Zor, named as Zor Grand was launched in Q2, which is also gaining momentum. M&M sold 18.6K units of E-3Ws in Q2 itself as compared to just 16,000 units in FY 22. M&M is expanding its existing capacity for e-3W and e-4W at its Zaheerabad plant in Telangana for an investment of ?10 bn over the next 8 years. We expect 50%/15% (on a high base) growth in 3Ws in FY24E/25E respectively.

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