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Strong SUV; Muted tractor outlook

Mahindra & Mahindra's (MM IN) Q2FY27 standalone EBITDA margin stood at 11.7%, contracting ~290bp YoY and ~54bp QoQ, impacted by elevated commodity inflation despite proactive pricing and cost efficiencies. Automotive EBIT margin, including eSUV contract manufacturing, improved ~58bp QoQ to 7.7%, while Farm EBIT margin declined ~176bp QoQ to 16.8%, reflecting weaker tractor volumes, commodity inflation and operating leverage. Management highlighted resilient SUV demand, with FY27 growth guidance maintained at mid- to high teens, while reducing its FY27 tractor industry outlook to flattish from ~5% earlier due to deficient monsoons and a high base. EV profitability remains healthy at ~9% EBITDA margin, supported by PLI benefits, with further improvement expected from localisation and scale. We revise our FY27– 29E core EPS estimates by ~0% to -4% and maintain Buy with a TP of INR 4,130 (earlier INR 4,578), based on our SOTP valuation

Auto: Robust demand; capacity expansion and EV scale-up to drive growth:

M&M maintained its mid- to high-teens SUV growth outlook for FY27, with demand remaining strong across ICE and EV portfolios despite commodity inflation and capacity constraints. Auto operating margins improved to 9.8% in Q2FY27 from 8.9% in Q1, supported by cumulative price increases of ~5%, favourable mix and cost efficiencies, despite steel/copper/rubber inflation of ~17%/~42%/~40% YoY. EV penetration reached ~12% of SUV volumes in H1FY27, with EV margins at ~9% supported by PLI benefits; Management expects localisation and operating leverage and pricing as levers to offset the PLI phaseout eventually. SUV/EV capacity is targeted to increase to 82k units/month by Q4FY27 and 92k by FY28, while five major launches are planned by June 2027. Management expects demand to remain healthy, with capacity additions supporting market-share gains.

Farm: FY27 industry outlook cut; margin recovery likely gradual: M&M revised its FY27 tractor industry growth outlook to flattish from ~5% earlier, reflecting severe monsoon deficits, particularly in Maharashtra and Karnataka, weaker agricultural sentiment and a high GST-led base. This implies ~10% YoY industry volume decline in H2FY27, including some inventory correction. Farm EBIT margin contracted ~176bp QoQ to 16.8%, impacted by lower volumes, commodity inflation and adverse operating leverage, despite cumulative price hikes of ~4%. Management expects near-term pressure to persist in Q3, with improvement from Q4FY27 and normalisation in FY28, subject to rainfall recovery. Meanwhile, restructuring of loss-making international operations should support consolidated farm profitability in H2FY27, while rising mechanisation and increasing demand for higher-HP tractors remain structural growth drivers

Reiterate Buy with TP of INR 4,130: We continue to factor in 14% UV volume growth, and we had earlier also expected flat tractor growth for FY27, which was lower than management’s earlier tractor growth guidance. We expect M&M to regain lost market share and sustain PV outperformance, supported by capacity expansion, a strong SUV portfolio and upcoming launches. Encouragingly, Vahan PV retail market share improved ~10bp YoY to 13.3% in Q2FY27, indicating early signs of stabilisation. At ~19x FY28E core EPS, valuations remain attractive. We reiterate Buy with an SOTP-based TP of INR 4,130 (earlier INR 4,578), valuing the total auto at 26x and farm equipment at 20x Dec’28E P/E, with 454 per share attributed to listed subsidiaries.

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