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M&M in Q4FY24, delivered a decent set of performance on a quarterly basis despite a weak FES volume. Revenue for the quarter grew by 11.2% on YoY basis to Rs.251bn (vs CEBPL est. of Rs.242bn) which is better than with our estimates. Automotive business grew by 21.4% YoY to Rs.199bn and whereas FES segment de-grew by 6.4% YoY to Rs.52.3bn. Margin during the quarter came at 12.9% (excluding investments from JV& Subsidiary) (+51bps YoY/+11bps QoQ) led by RM cost. EBITDA grew by (15.8% YoY/+0.1% QoQ) to Rs.32.4bn (vs CEBPL est. of Rs.32.01bn) and APAT for the quarter jumped by 5.5% YoY to Rs.20.3bn. Management expects to maintain high teen growth going forward while maintaining the margin

* The Automotive segment margin continued to expand driven by RM cost benefit, with the EBIT margin increased by 154bps YoY to 8.8%. Farm Equipment segment’s EBIT margin came in at 15.8% contracted 89bps YoY/32bps QoQ, contraction in margin is largely due to change in mix. The AUTO/FES EBIT mix stood at 68:32 in Q4FY24 compared to 56:44 in Q4FY23.

* Successful launch of XUV3X0: On the first day of booking M&M received ~50k booking for its newly launched vehicle XUV3XO which has capacity of around 9000/month. In this Compact SUV segment XUV3XO is competing with its rivals like Nexon, Brezza, Venue, Sonet , Magnite, Kiger etc. It's a very competitive segment where base model pricing starts from Rs.7.lakh and goes up to Rs.15 lakh. M&M with the XUV3XO launch is aiming to maintain their market share in the Compact SUV segment which is roughly around 50% of the total SUV market (less than 4meter). With XUV3XO, the company is offering some of the features which are available in XUV700 which might attract some customers from the large SUV segment. However, the net target market is in favor of 3XO. We have to wait on how new order booking takes place within the portfolio.

* Order book for XUV3XO-50k, XUV700-16k, THAR-59K, Bolero & neo-10K, Scorpio-N-86k. The company is investing in product development, with a focus on the SUV segment and has a wide and strong product portfolio, with many new products in the pipeline. Management is focusing on capitalizing on its market leadership of the Auto and Farm sectors, unlocking potential in MMFSL and TechMahindra, and focusing on growth gems with 5X growth over 7-8 years.

Outlook and Valuations: Company is increasing its capacity significantly from current 49k/month to 72k/month by FY26, in line with increasing SUV demand which is expected to grow 10-11% in FY25. We expect the Automotive segment to register healthy growth in coming years. Additionally, in the tractor segment, a series of launches are underway in various categories, which will support the growth of the Farm Equipment segment. Further, launches in the Farm machinery segment (high margin) are also expected to do well going forward. Additionally, management’s capital allocation to remain on core business will further create shareholders in coming years. We maintain an BUY rating on the stock with a SOTP TP of Rs.2,569 (based on 19x FY26E Core EPS + subsidiary valuation ).

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