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M&M reported decent Q1 FY25 numbers wherein the topline was reported at ?271 bn, a growth of 11.3% yoy and 6.7% qoq. Volumes rose by 11% yoy while realizations were 0.3% up yoy. Automotive division revenues came in at ?189 bn, an increase of 14% yoy led by success of Thar, Bolero, XUV & Scorpio families with ~178K order book. Automotive segment reported strong EBIT margins, which rose by 200 bps yoy and 70 bps qoq to 9.5% on positive operating leverage, stable commodity basket and model mix. Tractor margins came at a strong 18.5% which were 270 bps up qoq and 100 bps up yoy on price hikes, MSPs improving and subdued RM basket costs. Overall EBITDA margins therefore came in higher at 15.2% (120 bps up qoq and 60 bps up yoy). Lower other income coupled with higher tax rate, led PAT to decline by 6% yoy at ?26.1 bn. On a sequential basis, the growth was 21%.

SUV demand remains strong on robust demand for XUV 3XO

M&M’s SUV order book has reduced from ~220K to ~178K qoq on enhanced capacity. With new launches like the XUV3XO at attractive price rates and cut in prices for XUV 7oo, the company was able to increase its SUV revenue market share at 21.6%, which was 130 bps up yoy and 120 bps up qoq. M&M is now banking on its recent launch of XUV 3XO and upcoming launch of 5 door Thar in CY 24. From ICE capacity of 39K p.m by FY23 end, the company ramped it upto 49K p.m by FY 24 end, which will be scaled up further to 64K and 72K by the end of FY25 and FY26 respectively. SUV as an industry is attracting bulk of the PV demand now (>50%) and since M&M is driving substantial part of it, we expect this segment to register 17%/12% growth in FY25E/FY26E respectively. M&M plans to launch 9 ICE SUVs by 2030. Management maintained its SUV business growth target at higher teens in FY25E as against a 24% growth in Q1

Also on the CV side, the company has launched the Bolero Max Pick-up 2T 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. Management mentioned that the pick-up segment for them has grown at 1.6%, whereas the industry remained flat in Q1. In the LCV business (<3.5 T market), M&M has gained about 160 bps market share to reach of 50.9%. 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%/8% volume growth in CVs in FY25E/26E.M&M has garnered 43.5% market share in the e-3W space with the success of E-Alfa, Jeeto, Treo Auto (recently launched Metal body) and Treo Zor launched few quarters ago. Despite increasing competition, we expect 5%/6% (on a high base) growth in FY25E/26E respectively.

Tractor segment may see revival with above normal expected monsoons in CY24

M&M witnessed about 6% yoy growth in tractor volumes in Q1 FY25, while in FY 24, they declined by 6%. M&M won market share by 180 bps yoy in Q1 at 44.7%. This was a strong revival against FY 24 as MSPs have improved and input inflation has reduced. Success of newly launched Oja, Target and Naya Swaraj Tractors in the 20HP and 30HP range led M&M to win market share. 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. Margin performance was high at 18.5%, which was a strong growth. Currently management expects tractors to grow at a conservative 5%, but has indicated that it can grow more than expected as monsoons are expected to be above normal and geographies like South which had received deficit rainfall last year are at a good surplus this year. We expect domestic FES segment to grow at 7%/8% in FY25E/26E respectively as against 6% fall in FY24. We believe that due to election year, first half of the year was soft while on expectations of strong monsoons and weakening El Nino (as predicted by MET departments), we believe H2 FY25 to be stronger than H1.

Outlook and Valuation

The farm segment is witnessing favourable metrics like good monsoon, improving terms of trade for the farmer and higher rural spending by the Indian Government. Improving margin performance is a significant positive for this segment and we believe it to be maintained at this level on operating leverage stemming from higher demand. Destocking in this remains bit of a challenge to our demand estimate of 7% this year. The SUV segment continues to do well, with good demand continuing for its new product and variant launches. The e3W business continues to gain momentum, while we now also await further ePV launches by the company. We value the stock at ?3,257 on a SOTP basis, valuing the core business at 20x FY26EPS arriving at an intrinsic value of ?2,816 and value of subsidiaries at ?441. Maintain BUY.

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