Buy Mahindra & Mahindra Ltd For Target Rs.3,950 by Prabhudas Liladhar Capital Ltd
Healthy Demand Sustained amid Cost Pressures
MM’s Q1FY27 standalone operating revenue and PAT were modestly above estimates, while margins missed estimates as it was impacted by RM inflation, supply chain disruption, and manpower issues. The management is taking aggressive cost reduction measures and maintained FY27 volume growth guidance for its SUVs at mid-to-high teens, tractor industry at mid-single digits, and LCV industry at high-single digits. Operating leverage from accelerating BEV volumes and pricing should improve profitability along with the Growth Gems contributing to group’s topline and bottomline. We estimate volume/realization CAGR of 8.0%/3.6% over FY26-28E, translating into revenue/EBITDA/APAT CAGR of 12.7%/10.3%/9.2%. We reiterate ‘BUY’ rating with TP of INR3,950 (previous INR3,900), valuing the core business at 24x P/E on FY28E standalone EPS, and its share of subsidiaries’ value.
Gross margin contracts 195bps YoY to 22.0%:
Standalone op revenue of INR419.2bn (+23.0% YoY, +6.0% QoQ) met BBGe (was +1.6% above PLe). Realization was INR895.9k (+1.5% YoY/ -2.2% QoQ). EBITDA margin at 12.2% (-215bps YoY, -190bps QoQ) missed BBGe/PLe by -60bps/-70bps. Other expenses were higher than BBGe/PLe by +10.2%/+13.2%. EBITDA was INR51.1bn (+4.6% YoY, -8.2% QoQ). Adj PAT at INR36.9bn (+6.8% YoY, -1.4% QoQ) beat BBGe/PLe by +3.2%/+2.7% due to higher-than-expected other income, and lower taxes.
SUV revenue market share at 25.0% (-230bps YoY, +50bps QoQ):
MM maintained leadership position in revenue share in the SUV, and volume share in LCV (52.0%), Tractors (44.9%) and electric 3 wheeler (39.5%) segments. Standalone Auto PBIT margin (excl eSUV contract manufacturing) stood at 8.9% (-190bps YoY) despite string headwinds in commodity prices. Farm segment’s volume market share fell by -30bps YoY but increased QoQ, and standalone PBIT margin stood at 18.5% (-130bps YoY). Core tractor margin stood at 19.2% MM’s LCV market share was down to 52.0% (-210bps YoY).
SUV capacity to double by FY31 over FY26:
Capacity at FY26-end stood at 56.5k/8k units of ICEs/BEVs. Expansion is on track to reach 60k/8k units p.m. of ICE/BEV by H1FY27 exit and 70k/12k units of ICE/BEV by H2FY27 exit. Another 10k units p.m. from NU_IQ platform at Chakan should take total FY28 exit capacity to 92k units. Beyond this, the Nagpur Greenfield plant should add 20k units p.m. each by H1FY30 and H1FY31.
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SEBI Registration number is INH000000933
