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Well poised to outperform across all its verticals

Assigning incremental value of INR214/share to its EV subsidiary

We have categorized Mahindra and Mahindra (MM)’s core businesses into three buckets: Tractor, Pickup UV, and Passenger UV. All of these businesses witnessed a sharp growth in their underlying industries, resulting in record-high volumes in FY23. While the industry dynamics remained favorable for MM, its focus on- i) new model launches, ii) healthy margin expansion in the core business, and iii) prudent capital allocation resulted in an earnings CAGR of ~11% over FY19-23. This coupled with expected launches in the EV category led a substantial re-rating. As a result, MM has outperformed the Nifty index significantly over the last two years with ~44% CAGR visà-vis 12% for the Nifty. While we believe that growth should moderate in some of its verticals, MM is still better placed to outperform the underlying segments, which would result in ~12.5%/15%/17% revenue/EBITDA/ PAT CAGR over FY23-26E. The implied core P/E for MM stands at 18.1x/16.4x FY24E/FY25E EPS, which remains attractive vs. peers. Hence, we reiterate our BUY rating with a TP of INR2,005 based on Dec’25E SOTP and INR214/share for its ePV subsidiary.

Well placed to outperform in the PV segment:

? We believe domestic PV volumes should report 6-7% CAGR over FY23-26E. However, this will largely be driven by the outperformance in SUV volumes and execution of the current order backlog.

? MM’s reorientation of its SUV business to maintain its DNA and brand positioning has led to a revival in its fortunes and has resulted in a robust demand momentum for its SUVs. This has led to a strong order backlog as production is unable to keep up with demand, providing visibility of sustained volume traction over the next 3-4 quarters. This, we believe, should drive ~14% volume CAGR for MM Passenger SUV over FY23-26E.

To capitalize on market leadership in the 2.0-3.5T LCV category:

? The domestic LCV industry is likely to reach its peak volumes in FY24, with an estimated volume growth of ~3% YoY. Over the last few years, the volume of pickups (2.0-3.5T) has exceeded that of lower tonnage LCVs. The share of the 2.0-3.5T segment within the LCV good carrier category has increased to 62% in 1HFY24 from 52% in FY20.

? Given the current scenario, we do not expect any significant growth in industry volumes for LCVs, and it is likely to witness a low single-digit growth in the coming years. However, in the growing 2.0-3.5T goods segment, MM has a market share of ~62.5% (vs. ~56.8% in FY21). This makes MM better poised to outperform in the LCV category by capitalizing on its market leadership in most of the segments.

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