M&M gains 5% in 3 days, nears record high on margin improvement hopes

Shares of Mahindra & Mahindra (M&M) was up nearly 2 per cent to Rs 1,589 in Wednesday’s intra-day trade. The stock of automobile company traded higher for the third straight day as it gained 5 per cent as analyst expect M&M to maintain its growth momentum. The stock quoted close to its record high of Rs 1,594.85 touched on July 13.

In an exchange filing, M&M said that analysts at CARE Ratings reaffirmed ratings for existing bank facilities of the company. The reaffirmation of the ratings for the bank facilities of M&M continues to factor its strong market position with leadership in the domestic tractor industry, light commercial vehicles (LCV) segment and electric vehicle (EV)-three wheeler segment and well-diversified business profile.

"During FY23, M&M recorded a healthy revenue growth of 46.7 per cent, driven by volume growth and higher realisations. The operating margins remained stable at 11.46 per cent in FY23 despite a 51.7 per cent increase in the cost of goods sold. Going forward, we expect M&M to maintain its growth momentum. Softening of raw material prices, too, is expected to improve margins going ahead," the credit ratings agency added.

Analysts at Sharkhan maintained a 'buy' rating on M&M with a revised SOTP-based price target of Rs 1,736 due to a healthy order book in the Passenger Vehicle segment, market leadership in the tractor segment, opportunity to grow in the farm machinery segment, and its road map to play in the EV space.

Along with a strong order book in the SUV segment and leading position in the domestic tractor segment, M&M is now gradually introducing its global portfolio to expand its addressable market.

While M&M has acquired a 3.5 per cent stake in RBL Bank as part of its long-term strategy related to its financial business (Mahindra Finance), the company maintained its commitment for a disciplined capital allocation and maintain its policy of not to invest in non-core areas in normal situations.

M&M is consistently focusing on improvement in its operating profitability. Its EV projects are on track. Historically M&M’s operating performance has largely depended on the tractor segment; however, analysts believe the auto segment is expected to drive its operating performance in the coming years due to increasing volumes going ahead.