Mahindra & Mahindra rallies 5% on steady March quarter earnings

Record annual profit was driven by successful mega launches in automotive, steady growth at farm equipment, strong operating performance at financial services and value unlock through monetisation.

Shares of Mahindra & Mahindra (M&M) rallied 5 per cent to Rs 1,350 on the BSE in Monday’s intra-day trade after the company reported steady January-March quarter (Q4FY23) earnings, with 18 per cent rise in consolidated profit after tax (PAT) at Rs 2,637 crore, helped by robust performance by its businesses. The company had posted PAT of Rs 2,237 crore in the same period in previous fiscal (Q4FY22).

The company’s revenue from operations in Q4FY23 increased by 31 per cent at Rs 22,571 crore, from Rs 17,237 crore in Q4FY22. On the operational front, EBITDA (earnings before interest, taxes, depreciation, and amortisation) increased 44.5 per cent to Rs 2,797 crore from Rs 1,936 crore in Q4FY22. Ebitda margin in Q4FY23 improved 120 bps to 12.4 per cent from 11.2 per cent, year-on-year (YoY).

Meanwhile, M&M posted an all-time high record annual net profit of Rs 10,282 crore, up 56 per cent YoY. This was driven by successful mega launches in automotive, steady growth at farm equipment, strong operating performance at financial services and value unlock through monetisation/partnerships.

Analysts at ICICI Securities retained BUY rating on M&M tracking robust response to new launches in the SUV space with resultant order backlog of ~2.9+ lakh units and consequent increase in capacity in phased manner, focus on market share gains in tractor domain with series of new launches, amid persistent focus on capital efficiency.

With operating leverage at play, benign commodity prices, focus on cost control but offset by lower share of tractors in overall mix (high margin product); we expect EBITDA margins to stabilise at ~12.5 per cent over FY24-25E, the brokerage firm said in result update.

Continued focus on prudent capital allocation, leadership position in E-3-W and LCV space and revival of rural demand to act as structural positives. Persistent focus towards electrification with clear product timelines amid overall aim to have 20-30 per cent of SUV portfolio as electric vehicles by 2027 are key triggers for future price performance, analysts said.

“While the outlook for tractors remains stable, we expect the Auto business to be the key growth driver for the next couple of years. Despite deterioration in the mix, we estimate revenue/EBITDA/PAT CAGRs of ~14 per cent/19 per cent/16 per cent over FY23-25E. The implied core P/E for M&M stands at 14.2x/12.5x FY24E/FY25E EPS,” Motilal Oswal Financial Services said.

While the valuation is still cheap compared to peers, it has seen a substantial rerating in FY23 as the stock is now trading in line with its five-year average core PE (against discount of 30 per cent earlier) driven by a strong performance in the SUV segment, market share gain in tractors and new launch pipeline in EVs. We maintain our BUY rating with a target price of Rs 1,500/share, the brokerage firm said in result update.