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Healthy revenue growth: M&M Q2FY24 revenue came in at Rs 24,310 Cr, registering a growth of 15.7% YoY/1.1% QoQ. The growth in revenue was driven by upbeat volumes across its auto division especially the UV category which continues to witness healthy demand while tractors volume declined on the account of softer monsoon. Amongst divisions, Automotive revenue stood at Rs 18,405 Cr up by 22% YoY/10.7% QoQ while Farm Equipment revenue declined marginally as compared to last year and 20.6% sequentially

Mixed margin performance: Gross profit was reported at Rs 5,931 Cr, up by 20.2% YoY while remained flat sequentially with a margin of 24.4% which expanded by 92bps QoQ and declined by 30bps QoQ. Similarly, EBITDA stood at Rs 2,934 Cr registering a growth of 20.1% YoY whereas it declined by 9.3% sequentially with a margin of 12.1% which expanded by 44bps YoY and declined by 138bps QoQ. The mixed performance in margin was due to the weaker mix of products and one time cost associated with the launch of tractors.

Strong Automotive performance: Its EBIT was reported at Rs 1,662 Cr up by 88.2% YoY/32.7% QoQ and margin of 9% which expanded by 318bps YoY/150bps QoQ, benefiting from cost optimization efforts and increase in price of its key variants like XUV 700 and Thar. Management has indicated that they foresee margin improvement in coming quarters which will be aided by better product mix and their cost reduction efforts along with value engineering.

Subdued Farm Equipment performance: EBIT declined by 2.3% YoY to Rs 946 Cr due to decline in volume by 3.7% YoY because of high base and relatively softer monsoon. Consequently, EBIT margin declined by 32bps YoY to 16% while its core tractor EBIT remained flat at 17.5%. The decline in margin was due to one-time cost of OJA, Naya Swaraj and other tractors. Management indicated that the margin could see another one-time impact in the upcoming quarter on the account of sponsorship in the cricket world cup event.

Outlook & Valuations: With consistent demand in its Automotive division especially for its utility vehicles will drive the volume higher for the company while new launches in LCV segment and Farm Equipment would further aid in volume growth in the respective segments. The company has been consistently improving its market share across divisions, indicating healthy response for products and strong execution of its strategy. Further, traction in its EV business in passenger vehicle and LCV segment shall provide the next leg of growth for the company. With a favorable demand scenario in the Auto Division and strong growth outlook in the Farm Equipment business, we estimate its revenue/EBITDA/PAT to grow at a CAGR of 18.2%/25.1%/38.2% over FY23-FY25E. We maintain our Buy rating with a revised target price of Rs 1,804 (14.5x of FY25 EPS and its subsidiaries at Rs 290).

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