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M&M’s net revenues increased by 13% yoy, driven by (1) 1% yoy increase in volumes and (2) 12% yoy increase in ASPs. M&M’s standalone Q2 FY25 EBITDA of ?39.5 bn (+29% yoy and -2% qoq), was slightly below street estimates due to higher-than-expected other expenses, partly offset by better gross margins. EBITDA margin came in at 14.3% (+140 bps yoy and -60 bps qoq). Gross margins declined by 50 bps on a qoq basis owing to lower mix of the tractor segment. Other expenses grew by 6% qoq despite low single digit volume decline due to higher marketing spends. Adj. PAT grew by 8.8% yoy and 48% on higher other income sequentially.

SUV demand remains strong

The company’s SUV volumes grew by 19% in Q2FY25 led by robust demand for the recently launched XUV 3XO and steady demand trends for XUV 700 and Scorpio models. Strong growth in XUV 700 is also led by pricing discounts offered by the company from July 2024 in anticipation of demand slowdown supported by the reduction in chip procurement costs and cost reduction efforts using value engineering. The company’s pricing strategy worked out well as the company was able to post strong volume growth while maintaining the EBIT margins at 9.5% on a qoq basis in Q2FY25, which we believe is commendable. Also, the company expects the volume growth likely to sustain over the coming quarters and aims to grow its SUV segment volumes by mid to high teens on a yoy basis in FY2025E. We expect the company’s SUV volumes to grow by mid-teens in FY2025E led by strong demand for new launches (Thar Roxx, EVs) and existing product line-up (XUV 3XO, XUV 700, Scorpio).

The company highlighted that they will launch nine ICE SUVs (including three refreshes) and seven BEVs by FY2030E. The company is planning to expand the monthly SUV capacity to 64k and 72k units by FY2025E and FY2026E, respectively. 15k monthly run rate increase in capacity in FY2025E will be used to enhance the capacity of ICE SUVs for Thar 5-door and XUV3XO by 7k units each and 8k units for BEVs. The additional capacity to be built in FY2026E is primarily to enhance the BEV production rate. However, the company is planning to recalibrate the capacity expansion strategy between ICE and EV as the company’s ICE products are seeing strong traction in the domestic market. The company is planning to unveil the two new BEVs (BE 6e, XEV 9e) on November 26, 2024 and will be up for sale from Q4FY25E.

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