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Strong execution despite cost pressures; capacity expansion underpins growth:

M&M delivered a solid Q2FY27, with consolidated revenue and PAT increasing 25% YoY each. Auto remained the key growth driver, with SUV volumes rising 26% to 183k units and LCV volumes increasing 19% to 83k units. SUV revenue market share reached 24.3%, while Auto revenue grew 39% YoY to INR 377,560 Mn. Consolidated Auto PBIT margin stood at 8.8%, down 50 bps YoY, but improved 110 bps QoQ, supported by pricing and mix. EV momentum strengthened, with 23,345 eSUV billings in this quarter and capturing 12.7% penetration ahead of the industry average of 11.0%. The management expects SUV and EV capacity to reach 82k units by FY27E exit, 92k by FY28E and 132k by FY31E, alongside five launches by June 2027.

Farm performance weakens amid monsoon-affected demand slowdown:

Domestic tractor volumes declined 6% YoY to 116k units, while market share contracted 150 bps to 41.5%. The weakness was also reflected in financial performance, with consolidated Farm revenue declining 6% to INR 95,720 Mn and PAT falling 9%. The management has consequently revised its FY27E domestic tractor industry outlook from 5% growth to flattish, citing uneven monsoon conditions and subdued rural demand. Core tractor margin is expected to remain under pressure in Q3FY27E and recover in Q4FY27E

We projected growth momentum to sustain, driven by demand, EV adoption and capacity additions, while the planned capacity expansion and product launches should strengthen medium-term growth visibility. The management maintained its mid-to-high-teen SUV volume growth guidance and raised its LCV industry outlook to double-digit towards. However, commodity inflation, capacity execution and monsoon-led weakness in tractor demand remain key monitorables.

Q2FY27: Strong revenue performance; EBITDA margin impacted negatively

* Standalone revenue was up 27.1% YoY and 1.3% QoQ to INR 4,24,774 Mn (vs CIE est. of INR 4,02,262 Mn), led by 16.2% YoY growth in volume and 7.7% YoY growth in automotive ASP, while tractor ASP grew 6.6% YoY

* EBITDA was up 1.8% YoY and down 3.2% QoQ to INR 49,494 Mn (vs CIE est. of INR 54,305 Mn). EBITDA margin was down 289 bps YoY and 54 bps QoQ to 11.7% (vs CIE est. of 13.5%)

* APAT was up 12.9% YoY and 38.4% QoQ to INR 51,016 Mn (vs CIE est. of INR 50,794 Mn)

View and Valuation:

We marginally lower our FY27/FY28E EPS estimate to factor in commodity-led margin pressures. Nevertheless, sustained SUV demand, a robust product pipeline, strong EV scale-up and planned capacity additions underpin M&M’s attractive medium-term earnings growth prospects. We reduce our valuation multiple to 23x from 25x on average FY28/29E EPS, factoring in subdued Farm business growth and its impact on overall earnings visibility. Accordingly, we revise our target price to INR 4,000 (earlier: INR 4,150), including subsidiary valuations. We reiterate our ‘BUY’ rating on the stock.

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