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Strong execution across businesses; capacity expansion to sustain growth:

M&M delivered a healthy quarter in Q1FY27, driven by strong performance across its Auto and Farm businesses; however, elevated commodity inflation impacted the margin. The Auto segment continued to outperform, with SUV volumes rising 15% YoY to 175k units, while retaining its leadership with 25.0% SUV revenue market share. Growth was supported by healthy demand for premium SUVs, favourable product mix, and strong traction in recent launches. Auto revenue increased 32% YoY, while profitability remained resilient despite 400–500 bps commodity inflation, aided by calibrated price hike and cost optimisation. The management reiterated its long-term capacity expansion plans, including doubling of SUV capacity by FY31E, supported by Chakan debottlenecking

Farm business remains resilient; rural outlook improving:

The Farm segment continued its strong momentum, with domestic tractor volumes growing 18% YoY, exports increasing 15% YoY and market share strengthening to 44.9%. Growth was supported by improving monsoon conditions, healthy reservoir levels, stronger Kharif sowing and continued traction in farm machinery. The management remains optimistic on rural demand recovery, while continuing to focus on new product launches and export expansion.

We expect M&M's growth momentum to remain strong, driven by sustained SUV demand, accelerating EV penetration, capacity expansion and improving rural fundamentals. However, persistent commodity inflation, rising competitive intensity, execution of capacity ramp-up and uneven monsoon-led rural demand remain key monitorables in the near term.

View and Valuation:

We have reduced our FY27/FY28E EPS estimate by 8%/9%, respectively, factoring in commodity-led margin pressure. However, we believe M&M's strong SUV demand, a robust product pipeline, EV scale-up and ongoing capacity expansion provide superior long-term earnings visibility. Accordingly, we revise our target price to INR 4,150, valuing the company at 25x (unchanged) FY28E EPS, along with subsidiary valuation. We reiterate our ‘BUY’ rating on the stock.

Q1FY27: Revenue in line, EBITDA margin impacted negatively

* Revenue was up 23.0% YoY and up 6.0% QoQ to INR 4,19,197 Mn (vs CIE est. of INR 4,28,230 Mn), led by 21.3% YoY growth in volume and 1.0% YoY growth in automotive ASP, while tractor ASP grew 1.1% YoY

* EBITDA was up 4.6% YoY and down 8.2% QoQ to INR 51,105 Mn (vs CIE est. of INR 59,952 Mn). EBITDA margin was down 214 bps YoY and 188 bps QoQ to 12.2% (vs CIE est. of 14.0%)

* APAT was up 6.8% YoY and down 1.4% QoQ to INR 36,850 Mn (vs CIE est. of INR 40,281 Mn

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