Rating: BUY | M&M: Auto biz to be primary growth driver

Mahindra & Mahindra’s (M&M) operating performance in 2QFY24 fell slightly short, with Ebitda at Rs 30.7 billion compared to the estimated Rs 32 billion. However, the adjusted PAT surpassed expectations at Rs 34.5 billion. This outperformance can be attributed to better-than-expected other income, driven by higher dividends. We believe a relatively stronger 2H of FY24 compared to the 1H. This optimism is based on the expected growth in tractor volumes and the successful execution of SUV orders.

To reflect the increased ‘other income’ and a reduction in tax, we have revised our FY24E/FY25E EPS upwards by 5%/2%, despite the Ebitda cut. Our stance remains bullish, and we reiterate a BUY rating with a target price of `1,775.In 2QFY24, M&M witnessed a substantial increase in revenue, Ebitda, and adjusted PAT by 16%, 23%, and 48% y-o-y, respectively, reaching Rs 243.1 billion, Rs 30.7 billion, and Rs 34.5 billion. For 1HFY24, the company experienced a remarkable growth of 19% in revenue, 30% in Ebitda, and 66% in adjusted PAT on a y-o-y basis. Revenue growth during the quarter was driven by volumes growth of 11% y-o-y, while ASPs grew 5% y-o-y to Rs 804.6k/unit .

Despite the attractive valuation compared to peers, M&M underwent a significant rerating in FY23. The stock is currently trading in line with its five-year average core P/E, narrowing the discount that was previously at 30%. This shift is attributed to a robust performance in the SUV segment, increased market share in tractors, and a promising pipeline of new electric vehicle launches.