Buy Mahindra & Mahindra Ltd For Target Rs. 3,761 By Yes Securities Ltd
In-line; Segmental margins continue to be healthy
Valuation and View – Smooth BEV ramp-up key to watch for
M&M (MM) 3QFY25 operating performance was in-line as EBITDA margins expanded 160bp YoY (+30bp QoQ) at 14.6% (in-line). Auto segment margins sustained at 9.7% (+120bp YoY) while Farm equipment segment’s (FES) core EBIT margin stood at an impressive 19.5% (+260bp YoY). MM continues to gain market share in the domestic tractor market with 9MFY25 market share up by 170bp YoY at 43.9%. We expect the company to gain further market share in FY25, led by its new launches in the lightweight tractor category (OJA and Swaraj). We have assumed the tractor industry to post 6-7% growth while MM’s tractor segment to grow ~9% in FY25E. Progressively from 4QFY25, auto EBITM will be diluted to the extent of BEV contract manufacturing to be done from Mahindra Electric Auto (MEAL). The management has slightly raised its tractor growth guidance to >5% for FY25 (from 6- 7% earlier). The management indicated ICE capacity can be ramped up to an additional ~4k units (~2k each for 3XO and Roxx/Thar) and full fungibility within Thar portfolio is fully achieved.
Stock performance
We keep FY26/27EPS largely unchanged as we continue to build in sharp tractor volumes even for 1HFY26E. We expect auto business to continue lead the growth in the near-term, improving FES outlook would drive revenue/EBITDA/PAT CAGR to ~13.6%/17.9%/13.9% over FY24-27E. Implied core P/E for MM stands at 24.5x/22.7x FY26/FY27E EPS is attractive, despite recent outperformance. Hence, we reiterate BUY with SOTP based TP at Rs3,761 (vs Rs3,632) on Mar’27 EPS. Key near term margins risks are new BEV launch expenses impact in 4QFY25 and weak FES exports. MM is one of our top OEM pick along with TVSL, EIM.
Result Highlights – In line performance
* Revenues grew 20.3% YoY (+10.8% QoQ) at Rs305.4b (est ~Rs302.6) as volumes grew 17.3% YoY to ~367.3k units while ASP grew 2.6% YoY (-2.1% QoQ) at Rs831.5k/unit (est ~Rs823.8k/unit). Auto ASP grew by 3.3% YoY (flat QoQ) at Rs912.8k/unit while Farm ASP grew 1.3% YoY (-3.6% QoQ) at Rs670.7k/unit.
* Gross margins expanded 70bp YoY (-20bp QoQ) at 25.6% (est 26%). EBITDA came in at Rs44.7b (+35.6% YoY/+13.1% QoQ, est Rs44.2b) with margins at 14.6% (+160bp YoY/+30bp QoQ, est 14.6%). Segmental EBIT - Auto +120bp YoY (+20bp QoQ) at 9.7%, FES at +260bp YoY (+60bp QoQ) at 18.1%.
* Higher depreciation at Rs10.5b (+8.7% QoQ, est Rs9.7b) partially offset by higher other income at ~Rs6.1b (est Rs4.5b), led to Adj.PAT came in at Rs29.6b (+19.1% YoY/-23% QoQ, est Rs30.2b).
* 9MFY25 revenue/EBITDA/Adj.PAT grew 15.2%/28.2%/9%.
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