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Mahindra & Mahindra (M&M) reported 1QFY25 EBITDA margin of 14.9% (+130bps YoY), 90bps above JMFe. Domestic tractor industry is expected to grow by 5% during FY25. Positive monsoon forecast remains a key enabler. In the auto segment, gradual addition to SUV capacity (during FY25), high outstanding bookings (178k+ units) and new launches are expected to drive near-term sales growth momentum. Higher operating leverage and benign commodity costs are expected to support the margin performance. Driven by strong execution in autos and expected recovery in farm segment, we maintain BUY with a Jun’25 TP of INR 3,175 (SOTP valuation, 24x core business). Success of upcoming launches (EV and ICE) remains a key monitorable.

*  1QFY25 – Mixed performance: M&M reported net sales of INR 270bn (+12% YoY, +8%QoQ), 4% below JMFe. EBITDA margin stood at 14.9% (+130bps YoY, +180bps QoQ), 90bps above JMFe. Auto EBIT margin stood at 9.5% (+180bps YoY, +50bps QoQ), 100bps above JMFe. Reported farm segment EBIT margin stood at 18.5% (+100bps YoY, +270bps QoQ), 150bps above JMFe. EBITDA stood at INR 40.2bn (+22%YoY & QoQ), 2% above JMFe. Adj. PAT for the quarter stood at INR 26.1bn (-5%YoY, +30% QoQ), c.3% below JMFe.

*  FES segment - 1QFY25 update & outlook: M&M’s total tractor volume stood at c.121k units (+c.6% YoY, +c.70% QoQ). Its tractor market share improved by 180bps YoY to 44.7% during 1QFY25. The company is witnessing green shoots of revival in tractor demand led by 1) Favourable terms of trade and price realisation in mandis 2) abovenormal monsoon forecast 3) Improved government spends on rural and 4) favourable festive base (Navratra in 2HFY25). Overall, the industry is expected to grow by 5%+ during FY25.With respect to international markets, M&M indicated of continued pressure in end-markets like US and EU. In respect of Farm Machinery (FM), revenue for 1Q grew by 34% YoY to INR 2.6bn. M&M is aiming for 40% CAGR growth in the medium-term in this category and expect significant improvement in its profitability over next ~24 months.

*  Automotive segment - 1QFY25 update & outlook: M&M’s revenue market share for SUV segment increased by 130bps to 21.6% during 1Q (FY24: 20.4%). Recently launched ‘XUV 3XO’ has been received well owing to its features and competitive pricing. In FY25, M&M plans to launch 5-door Thar followed by multiple EV launches. FY24 exit SUV capacity stood at 49k units/month and the company plans to ramp this up to 64k / 72k units / month by FY25 / FY26. There would be additional EV capacity of 8k by FY26 end. Led by the ramp-up in capacity, the company plans to bring down its order book going forward (~178k units). Management indicated that the underlying demand remains muted and its new billing run-rate stands at c.41k units/month. However, M&M has guided for mid-to-high teen growth in SUV sales during FY25 led by new launch (3XO and Thar). Management indicated that recent price cut in XUV700 has been to increase its accessibility and drive growth. However, the company does not expect any significant impact on margins owing to this. Positive operating leverage is also expected to support Auto EBIT margin going ahead

* Capex & capital allocation: M&M has guided for INR 270bn / 50bn capex for Auto / Farm over FY25-27 largely towards new model launches and capacity expansion. The Company also indicated that both Auto and Farm segments are generating healthy cash flows and are self-sufficient to fund this capex. The company expects strong cash generation of INR 70bn in ‘Services segment’ (MMFSL & TechM) over FY25-27.

*  Other highlights: 1) M&M indicated that it remains committed to EVs. While Hybrids may do well in the near-to-medium term, industry is expected to ultimately transition to EVs. If needed, M&M will be ready with Hybrids. Also, the company indicated that there was no impact on its demand owing to road-tax waiver on Hybrids in UP. 2) E3W volumes during 1QFY25 were 15.5k units (+6% YoY) and market share stood at 43.4%. The company indicated that with rise in competition, it expects EV penetration to increase (currently at 20%). 3) Current Auto inventory is 4-5 days higher than normal level and the company plans to reduce it with higher retail sales. 4) The company has accrued INR ~1bn of PLI incentives during the qtr (netted-off from COGS). 5) MHCV business has turned cash breakeven and the company expects improvement in profitability with volume ramp-up. 6) M&M remains committed to sustaining at least 18% ROE for its group operations.

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