Buy Mahindra & Mahindra Ltd for the Target Rs 4,100 by Emkay Global Financial Services Ltd
M&M’s 1Q performance was a mixed bag, with revenue up 23% yoy led by 24%/19% yoy growth in Auto/Farm segments but EBITDAM lower by ~160bps qoq to 12.3% largely due to dip in gross margin. Auto EBITM fell by 230bps to 7.1%; Farm EBIT was relatively resilient at 18.5% (fell 85bps qoq). M&M indicated strong underlying demand with robust booking/enquiry momentum across its SUV portfolio. While Farm demand has been sturdy (despite El Niño concerns), M&M believes 2Q could see operating deleverage given that Festive is in 3Q (volume pick up in 3Q). M&M is scrambling to increase its SUV capacity and targets 68k/mth (kpm) units by Sep-26 (ICE/BEVs: 60k/8k) with another 14kpm being added in FY28. M&M is on track for launch of the NU-IQ platform (10kpm capacity at Chakan by FY28-end; 240kpa units each in Phases 1/2 at Nagpur greenfield by FY30/FY31, respectively). In 1Q, M&M saw a 450bps/300bps commodity impact in Auto/Farm segments which was partially offset by calibrated pricing hikes (1.6%/2.6% on average in Apr-26/Jul-26) and cost control measures. M&M expects Auto margins to be stable/improve slightly (given the volatile macro situation) and Farm margins to be under pressure (given rise in steel/rubber prices—cannot be hedged). We cut FY27E/FY28E EPS by 2-4% due to commodity-led margin pressure. Given the robust underlying SUV demand, we retain BUY with SoTP-based TP of Rs4,100 at 25x Jun-28E core PER (rolled forward).
In-line revenue performance; lower auto/farm EBIT qoq along expected lines
Revenue grew 23% yoy to Rs420bn, led by 20% yoy volume growth and ~2% yoy higher ASPs (down 1.5% qoq). EBITDA grew 7% yoy to Rs51.5bn, with EBITDAM down by 164bps qoq at 12.3% owing to dip in gross margin. Auto/Farm revenue was up 24/19% yoy; Auto/Farm EBITM fell by 237bps/85bps qoq to 7.1/18.5%. Adj PAT was up 7% yoy, (above estimates).
Earnings call KTAs
1) M&M indicated strong underlying demand with robust booking/enquiry momentum across its SUV portfolio. While Farm demand was resilient (despite El Niño concerns), 2Q could see operating deleverage given that Festive is in 3Q (volume pick up in 3Q).
2) M&M is scrambling to increase its SUV capacity and targets 68kpm units by Sep-26 (ICE/BEVs: 60k/8k) with another 14kpm being added in FY28. M&M is on track to launch the NU-IQ platform (10kpm capacity at Chakan by FY28-end; 240kpa units each in Phase 1/2 at Nagpur greenfield by FY30/FY31, respectively).
3) In 1Q, M&M saw a 450bps/300bps commodity impact in the Auto/Farm segments which was partially offset by calibrated pricing hikes (1.6%/2.6% on average in Apr/Jul-26) and cost control measures.
4) M&M expects Auto margins to be stable/improve slightly given the volatile macro situation; it expects Farm margins to see higher pressure versus Auto in the near term, as steel (+24% yoy) and rubber (+30% yoy) inflation remain largely unhedgeable.
5) M&M continues to prioritize profitable growth rather than sacrificing margins for EV market share, targeting long-term profit parity between ICE and EVs while simultaneously expanding market share across both powertrains.
6) BEV profitability continues to improve materially; BEVs are EBITDA-positive even ex-PLI incentives. Margin improvement is being driven by localization, value engineering, platform scalability (INGLO architecture across multiple top hats), and scale benefits, thus reducing dependence on government incentives over time.
7) Management highlighted increasing premiumization within tractors, with ~69-70% of volumes now coming from the 40-50HP category, driven by rising adoption of farm implements
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