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Segmental performance in line

Tractor guidance raised to 6-7% (implies double-digit growth in 2H)

* MM reported an in-line operating performance in 2QFY25. EBITDA margin expanded 150bp YoY to 14.3% (est. 13.5%). Farm equipment segment’s (FES) core PBIT margin stood at an impressive 18.7% (+120bp YoY) in a seasonally weak quarter, while auto segment sustained its margin at 9.5% despite the pricing intervention in XUV700. The management has raised its tractor growth guidance to 6-7% for FY25 (from 5% earlier) and maintained its UV growth guidance of mid-teens.

* We have tweaked our FY25/FY26 EPS estimates. Reiterate BUY with a TP of INR3,420 (based on Sep’26E SOTP).

Higher other income drives PAT beat

* 2QFY25 revenue/EBITDA/adj. PAT grew 13%/26%/13% YoY to INR275.3b/INR39.5b/INR38.4b (est. INR272.3b/INR36.8b/INR33.7b). 1HFY25 revenue/EBITDA/adj.PAT grew 12.5%/24%/17% YoY. For 2HFY25, we estimate revenue/EBITDA/adj. PAT to grow 9%/18%/24% YoY.

* Volumes grew 7% YoY, while ASP rose ~5.5% YoY.

* EBITDA margin came in at 14.3% (+150bp YoY/-60bp QoQ; est. 13.5%). The margin beat was largely driven by an improved mix.

* Other income was higher than expected at INR19.9b (est. INR15b) and included dividend income of INR12b from subs and associates.

* Aided by higher other income, adj. PAT came in at INR38.4b (est. INR33.7b), up ~13% YoY.

* FCFF/CFO grew 3.4x/37% YoY. Capex remained flat YoY.

* Auto: Revenue grew 14% YoY to INR211.1b, while volume/ASP grew 8.5%/5% YoY. PBIT margin was 9.5% (+140bp YoY/flat QoQ; est. 9.6%). Auto capacity now stands at 54k (up 10% from FY24 exit levels).

* FES: Revenue grew 10% YoY to INR65b, while volumes/ASP grew 4%/6% YoY. PBIT margin was in line with our estimate at 17.5% (+150bp YoY/- 100bp QoQ).

Highlights from the management commentary

* Auto Demand outlook: The management has maintained its guidance of mid-teens (15-18%) growth for FY25. Urban pockets have started seeing stress, which would be temporary, while rural pockets are doing well (MM’s rural mix for LCVs/UVs stands at 65%/50%). However, MM remains confident of sustaining the momentum given healthy demand for its new launches.

* FES demand outlook: The management has raised its growth guidance to 6- 7% for FY25 from 5% earlier, implying 13-15% YoY growth in 2HFY25. Several positive macro-economic factors, such as higher reservoir levels (15% above LPA) at 87%, growth in Kharif output, and hike in MSP of key Rabi crops, should drive growth. The management sounded confident of steady growth even in FY26 given healthy reservoir levels.

* BEV launches: The management has indicated that it would unveil productionready BEVs on 26th Nov’24. However, it has cautioned that demand for this new category may not be as strong as for ICE versions as the category acceptance may take time in the Indian market. Also, one has to remember that BEV margins are likely to be substantially lower than ICE margins. It will apply for PLI in 3Q and hopes to get the benefits by FY26

Valuation and view

* We have tweaked our FY25E/FY26E EPS. We estimate MM to post a CAGR of ~13%/16%/15.5% in revenue/EBITDA/PAT over FY24-27E. While MM has outperformed its own targets of earnings growth and RoE of 18% in FY24, it remains committed to delivering 15-20% EPS growth and 18% ROE, ensuring sustained profitability and shareholder value.

* The implied core P/E for MM stands at 29x/25x FY25E/FY26E EPS. Maintain BUY with a revised TP of INR3,420 (based on Sep’26E SOTP)

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