IGI Logo

Resilient model to see minimal impact of exigencies

We met MM management to understand the current business dynamics amid macro uncertainty. We expect auto demand momentum to remain intact for MM over our forecast period (FY25-28E), led by: 1) lined-up launches of two ICE variants after the recent launch of XUV7XO and XEV 9S; 2) new platform launch of NU-IQ in CY27, and 3) two variant launches of LCVs in CY26. After a strong FY26, there are concerns of potential weakness in tractor demand in FY27, though we believe MM is well placed to minimize any such impact, given the resilience of this business segment as seen in the past. Further, MM is relatively better placed to offset the impact of the severe input cost pressure as the company has a policy of hedging its RM exposure. We estimate MM to post a CAGR of ~17%/15%/18% in revenue/EBITDA/PAT over FY25- 28. Focusing on its growth gems and looking to unlock value from time to time in some or all of these segments should create option value for shareholders. Maintain BUY with our SoTP-based TP of INR3,825.

MM to sustain healthy momentum in UVs

Over the years, MM’s mid-cycle variant upgrades have helped to enhance the value proposition of products for customers, and thereby add volume to the outgoing model. Thus, while MM may not have an all-new product launch in FY27, its variant launches are likely to help MM drive healthy growth in the fiscal. This is already visible in the improving volumes of XUV7XO relative to the outgoing model. MM has two more variant launches lined up for FY27. After this, MM will see the launch of the NU-IQ platform in CY27, which will see several model launches. Given a healthy launch pipeline, we expect MM to post 15% volume CAGR in FY25-28E.

MM well placed to handle any potential weakness in tractors

Given the high base of FY26 and an anticipation of a weak monsoon due to the expected El-Nino factor, there is a concern about the tractor demand outlook in FY27. However, given the strong demand momentum currently amid healthy rabi harvest, even if monsoon were to be sub-par, tractor demand may be nearly flat in FY27, after a strong 1H. Further, over the years, MM’s tractor business has displayed tremendous resilience in margins, even in times of a downturn, as it has multiple levers to offset such shocks. Accordingly, we expect a weak tractor outlook to have a minimal impact on MM’s overall earnings. We currently factor in 0%/5% growth for MM tractors in FY27E/FY28E.

Valuation and View

We believe MM is well placed to outperform across its core businesses, led by a healthy recovery in rural areas and new product launches in both UVs and tractors. We estimate MM to post a CAGR of 17%/15%/18% in revenue/EBITDA/PAT over FY25-28. Focusing on its growth gems and looking to unlock value from time to time in some or all of these segments should create option value for shareholders. Reiterate BUY with a TP of INR3,825 (based on Dec’27E SoTP).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH00000041