IGI Logo

M&M reported decent Q3 FY24 numbers wherein the topline was reported at ?256 bn, a growth of 18.4% yoy and flattish qoq. Volumes rose by 11.6% yoy and realizations went up by about 6.6% yoy. Automotive division revenues came in at ?185 bn, an increase of 26% yoy led by success of Thar, Bolero ,XUV & Scorpio families. M&M started rapidly catering to the order backlog as chip shortage issue softened and order book reduced to ~226K. Automotive segment reported strong EBIT margins, which rose by 160 bps yoy, (70 bps fall qoq) to 8.3% due to positive operating leverage, stable commodity basket and model mix. Tractor margins came slightly soft at 15.5% which were 50 bps lower qoq and lower 110 bps yoy as lower monsoons and unseasonal rains led to fall in volumes and margins, especially in South and West. Overall EBITDA margins therefore came in lower at a 14% (360 bps decline qoq and 100 bps growth yoy). Lower other income coupled with higher tax rate, led PAT to come in 13.8% up yoy at ?24.5 bn. On a sequential basis, the growth was 31.5% lower. Overall results were quite decent despite tractor business being on weak wicket.

SUV demand remains strong despite capacity mismatch in certain models

M&M witnessed 29.7% yoy and 3% 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 101K open bookings since its launch (~16 k per month). The Thar and high cost XUV 7oo launches are still having huge order book of ~7K each per month respectively, as their waiting periods are reducing now. Neo Bolero was launched in July 2021 which already has received strong order bookings (~10K 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 9K demand per month, while XUV 4oo and 3oo open bookings stood at 8.8K units p.m. The total order bookings stood at a reduced ~226K currently which is a positive sign indicating fast delivery of vehicles on the back of semi-conductor issue easing out. With this, the company was able to increase its SUV revenue market share at 21% from 19.9% 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. M&M might turn once again market leader as the company plans to launch its EV and ICE variants (XUV 3oo mid-cycle refresh and 5 door Thar) in CY24. 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.

Two models Thar and Scorpio are having capacity mismatches due to demand exceeding production, which may continue for this quarter, but shall normalise from FY25. There is a ramp down going on for the XUV 3oo as a new mid-cycle refresh is coming in June, which may have a greater response. We expect SUVs to register 26%/19%/15% growth in FY24E/FY25E/FY26E 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. 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.

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. 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% in the <3T market. 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 5%/4%/8% volume growth in CVs in FY24E/25E/26E.

M&M has garnered 59.5% YTD 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 18.1K units of E-3Ws in Q2 itself as compared to just 16,000 units in FY 22. Despite increasing competition, we expect 33%/23%/15% (on a high base) growth in 3Ws in FY24E/25E/26E respectively

M&M has garnered 59.5% YTD 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 18.1K units of E-3Ws in Q2 itself as compared to just 16,000 units in FY 22. Despite increasing competition, we expect 33%/23%/15% (on a high base) growth in 3Ws in FY24E/25E/26E respectively

Tractor segment market share grows on high base, near term outlook stays muted

M&M witnessed about 13% qoq growth and a 4% yoy de-growth in tractor volumes in Q3 FY24. M&M won market share by 80 bps yoy at 41.8% in Q3 FY24 yoy. The fall in FES volumes has been led by El Nino and its impact on the southern states and Maharashtra, leading to a deficit of 94.4% in CY 2023, GoI’s reduced spending on Agricultural and Rural development, slow Rabi sowing are also some of the reasons for low tractor growth. However, M&M highlighted that tractor segment retails are still holding up, which may report small declines as strong agricultural credit growth & MSPs, infrastructural activities (which would trigger non agri usage of tractors), success of newly launched Yuvo Tech + and launch of the lower HP range named as ‘Swaraj Target’ tractors in the 25HP and 29HP range may help the cause. In the farm machinery segment, M&M sees a robust demand with 15 new products launches in the Rice Cultivators, Rice and Vegetable Transplantors, Rotavators space. M&M is #2 in the Rotavator space with 21.9% market share (17.3% in YTD FY23). On high base of FY23, we may see some base effect in FY24. Also the company highlighted that because of shift of Navratri to April in CY 24 as compared to March in CY 23, March sales may get impacted and Q4 FY24 may report 10% de-growth yoy. Currently we expect domestic FES segment to grow at -5%/7%/12% in FY24E/25E/26E respectively as against 5% fall expected by management In the current fiscal.

Outlook and Valuation

M&M has over time exited its loss making businesses and have turned around several businesses which would definitely gather confidence of shareholders. The company has identified several growth gems, which can leverage the core strength of M&M group and accelerate the growth for the company over the medium term. We maintain BUY rating on attractive valuations; SoTP-based target price stands at ?2,051 (?1,676 core business valued at 11x rolled over FY26E earnings + subsidiary valuation of ?375) in line with our assumptions of margin improvement on increase in volumes and value of SUV where we expect market share to bounce back on new launches, 3Ws and LCV segments, production increase offering operating leverage, price hikes and prudent cost reduction measures. We believe negatives of FES segment is factored in the price and we expect a recovery in tractor volumes in FY25E on expectations of normal monsoons by the weather departments.

Please refer disclaimer at www.lkpsec.com/#foo

SEBI Registration number is INM000002483

Above views are of the author and not of the website kindly read disclaimer