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Revenue rises on higher automobiles volume

Mahindra & Mahindra Ltd (M&M) manufactures automobiles, farm equipment, automotive components and agricultural tractors, implements and engines.

* Consolidated net revenue from operation increased 9.8% YoY to Rs. 37,218cr driven by higher automobile volume.

* EBITDA margin expanded 110bps YoY to 19.5% supported by improved operating efficiency. Adjusted PAT dropped 6.4% YoY to Rs. 3,283cr.

* Sustained revenue growth, higher volume and rising market share in its key segment promise better performance in the long run. Strong open bookings and demand will continue to aid long-term growth for the company. Additionally, favourable market owing to the upcoming festival season and government spending will further aid growth. We, therefore, retain our upgrade our rating on the stock to BUY with a rolled over target price of Rs. 3,026, based on 22x FY26E adjusted EPS.

Automotive segment continues to boost revenue

Consolidated net revenue from operations grew 9.8% YoY to Rs. 37,218cr in Q1FY25, supported by automobile revenue which increased 16.3% YoY to Rs. 19,776cr led by double-digit growth in auto volume (including Mahindra Last Mile Mobility’s volume) to 212,000 (+14% YoY). Financial services revenue surged 20.7% YoY to Rs. 4,280cr. Revenue from the farm equipment segment remained flat YoY at Rs. 9,711cr. However, farm equipment volume rose 5% YoY to 120,000. The industrial businesses and consumer services vertical revenue edged down 0.9% YoY to Rs. 4,456cr. The company’s subsidiary, Growth Gems grew 34% YoY to Rs. 23cr, aided by robust occupancy in its hospitality business and strong presales in real estate business.

Higher revenue aids EBITDA; market share grows

EBITDA increased 16.0% YoY to Rs. 7,243cr, supported by higher revenue and better cost management. As a result, EBITDA margin expanded 110bps YoY to 19.5%. EBITDA growth was partly offset by an 8.2% YoY rise in cost of sales to Rs. 22,162cr. However, total cost of sales to revenue declined to 59.5% from 60.4% in Q1FY24. The company’s market share increased. In Q1FY25, SUV and LCV market share (part of the automobiles segment) increased to 21.6% (130bps YoY) and 50.9% (160 YoY bps), respectively, while the farm segment market share expanded 180bps YoY to 44.7%. Reported PAT fell 6.4% YoY to Rs. 3,283cr. due to higher finance cost, lower other non-operating income, and higher tax.

Key concall highlights

* The order bookings for SUVs stood around 178,000 units as on 1 July 2024. The Scorpio-N recorded the largest open booking of 58,000, followed by XUV 3XO with 55,000 open bookings.

* During the quarter, revenue market share of its SUV segment hit 21.6%, the highest in last two years.

* The company plans to increase its overall manufacturing capacity of SUVs to 72,000 units by FY26.

Valuation

M&M sustained its revenue growth on account of higher volume, gain in market share and good show across the segments. The management expects favourable monsoon, improved government spending in the rural sector and upcoming festival season demand to support its overall performance in H2FY25. Moreover, better costs-to-sales ratio, new launches, strong open bookings and capacity expansion plans are expected to bode well for the long term. We, therefore, upgrade our rating on the stock to BUY with a revised target price of Rs. 3,026 based on 22x FY26E adjusted EPS

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