New launches, premiumisation to drive M&M's continued outperformance

On track for continued outperformance in FY26 with strategic launches, premiumisation

Aided by improved margins in its key segments and higher other income, automotive (auto) major Mahindra & Mahindra (M&M) reported better-than-expected earnings in the July-September quarter (Q2). Brokerages expect the company to continue outperforming in the auto segment, driven by launches and the strong trajectory of healthy bookings. The stock has gained 24 per cent over the past year, compared to the peer index Nifty IT’s returns of about 13 per cent.

 

The company posted a 21 per cent year-on-year (Y-o-Y) growth in revenues, powered by a 16 per cent rise in volumes, while the remaining gains came from a 4.5 per cent improvement in realisations. Within the auto segment, volumes in the sport utility vehicle (SUV) category were up 7 per cent Y-o-Y, reaching 146,000 units.

 

M&M sold 30,000 electric vehicles (EVs) between March 25 and October 31 this year, increasing its eSUV penetration to 8.7 per cent in Q2, compared to the industry’s penetration of 7.4 per cent. The company has maintained its mid-to-high teens volume growth guidance for SUVs in 2025-26 (FY26). Growth over the next couple of years is expected to come from new launches in EVs, internal combustion engine-powered models, and hybrids.

 

The company’s revenue market share in SUVs rose by 390 basis points (bps) to 25.7 per cent. In the light commercial vehicle (LCV) segment (up to 3.5-tonne capacity), volumes increased 13 per cent to 70,000 units. Volume market share in LCVs stood at 53.2 per cent, up 100 bps Y-o-Y. Demand for LCVs has improved after goods and services tax (GST) rate cuts and is expected to be sustained in the second half of FY26, with the LCV sector projected to grow at a low double-digit pace.

 

M&M noted that volumes in the quarter were partially affected by the GST transition and logistics issues, although it made up for the lower volumes in August and September in October.

 

In the tractor segment, volumes increased 32 per cent Y-o-Y to 123,000 units. The festival season demand was supported by favourable rainfall, healthy reservoir levels, encouraging terms of trade, and GST cuts. M&M continues to maintain its leadership in the tractor market with a 43 per cent share, up 50 bps Y-o-Y. The management has raised its volume growth guidance from 5-7 per cent to low double digits (10-12 per cent) for FY26.

 

The company’s operating performance comfortably beat estimates. Operating profit rose 23 per cent, while margins improved by 20 bps. Tractor margins improved by 220 bps Y-o-Y to 19.7 per cent, while auto margins saw a slight contraction of 35 bps to 9.2 per cent. Auto margins were impacted by contract manufacturing for eSUVs. Excluding this factor, auto margins would have increased by 80 bps to 10.3 per cent.

 

Brokerages are positive on the company. Nomura continues to regard M&M as its top auto pick. Analysts Kapil Singh and Siddhartha Bera estimate that M&M’s SUV growth will continue to outperform the industry, with expected growth rates of 18 per cent, 11 per cent, and 7 per cent for FY26 through to 2027-28 (FY28), driven by premiumisation and a strong model cycle. The brokerage has also raised its tractor volume growth forecast to 12 per cent for FY26 and 5 per cent for 2026-27.

 

Motilal Oswal Research also has a ‘buy’ rating on the company. Analyst Aniket Mhatre believes that M&M is well-placed to outperform across its core businesses, driven by a healthy recovery in rural areas and product launches in both utility vehicles and tractors. M&M is expected to post an annual growth of 16 per cent in revenues, 17 per cent in operating profit, and 19 per cent in net profit from 2024-25 to FY28.