M&M rallies 10%, nears record high on strong operational performance in Q3

Shares of Mahindra & Mahindra (M&M) rallied 10 per cent to Rs 952 on the BSE in Monday's intra-day trade after the firm reported a healthy operational performance in the October-December quarter (Q3FY21).

The stock of cars and utility vehicles company surpassed its previous high of Rs 893 touched on February 4. It's trading close to its all-time high level of Rs 992 hit on August 30, 2018. Till 09:34 am, a combined 6.2 million equity shares have changed hands on the NSE and BSE so far.

In Q3FY21, the company said its consolidated profit after tax or PAT (after EI & NCI) was at Rs 704 crore, an increase of 252 per cent year on year (YoY). The key drivers were capital allocation actions, a 220 bps increase in standalone operating margins on the back of a 20 per cent growth in tractor volumes and a 12 per cent revenue increase in the auto business.

The increase in operating margins was driven by cost optimisation and operating leverage. Tractor volumes grew by 19.6 per cent on the back of a robust rural story. We expect strong demand to continue, the company said.

M&M expects the industry to log around 20 per cent YoY volume growth in the tractor segment for FY21E. Outlook for domestic tractor industry in near to medium term stays healthy on account of good water reservoir levels, high crop acreage (Rabi acreage at the highest level of 65 million hectares), procurement (Kharif procurement up 27 per cent YoY in 9MFY21) and remunerative prices.

"M&M’s Q3FY21 performance was driven by good performance in both the tractors (FES) and autos businesses. Furthermore, it has guided for an almost 90 per cent reduction in international subsidiary losses in FY22E, driven by the completion of phase-1 of the capital allocation exercise. M&M has twin levers of core business recovery as well as benefits of tightening capital allocation for EPS growth and re-rating," the brokerage firm Motilal Oswal Financial Services said.

It maintained ‘buy’ rating on the stock with a target price of Rs 1,040 and upgraded EPS by 14 per cent/20 per cent to reflect volume upgrade in tractors & autos, tighter cost control, lower depreciation, and higher other income.

“We expect sales, adjusted PAT to grow at 20 per cent, 40 per cent CAGR, respectively, in FY21E-23E. Volume visibility, sharper capital allocation focus (SsangYong Motor now classified as a discontinued operation, not to be consolidated into financials) & EV proactiveness help us maintain BUY on M&M,” ICICI Securities said in a results update.