Mahindra & Mahindra rallies 6%, nears record high on solid Q3 performance

The company said the automotive business continues to gain market share with SUV at 21.0% and LCV at 49.6%, and the farm market share has improved 80 bps to 41.8% despite a decline in the industry.

Shares of Mahindra & Mahindra (M&M) rallied 6 per cent to Rs 1,750 on the BSE in Thursday’s intra-day trade amid heavy volumes after the company said the group delivered ‘solid’ operating performance across all business verticals except Tech Mahindra. The stock of Mahindra Group automobile company was trading close to its record high of Rs 1,758 touched on December 29, 2023.

At 12:03 pm; M&M quoted 5.3 per cent higher at Rs 1,745.70, as compared to an umoved S&P BSE Sensex at 71,822. The average trading volumes at the counter nearly doubled. A combined 4.5 million equity shares of the company changed hands on the NSE and BSE.

M&M posted a 34 per cent year-on-year (YoY) rise in consolidated net profit at Rs 2,658 crore (excluding previous year gains on Susten and trucks impairment) for the December quarter (Q3FY23). The consolidated revenue grew 15 per cent YoY to Rs 35,299 crore.

The company said the automotive business continues to gain market share with SUV at 21.0 per cent and LCV at 49.6 per cent, and the farm market share has improved 80 bps to 41.8 per cent despite a decline in the industry. Auto Q3FY24 volumes came in at 211,000 units, up 20 per cent, and the company achieved its highest-ever utility vehicle volumes of 119,000 units.

As per the Society of Indian Automobile Manufacturers (SIAM), the passenger vehicle (PV) industry will grow 3-4 per cent next year, including 10-12 per cent growth in utility vehicles (UVs); M&M expects its SUV volumes to grow in the mid-high teens. Tractor industry to decline ~5 per cent in FY24E (implying ~10 per cent de-growth in Q4); while it is too early to provide FY25 guidance, there are more positive drivers (early monsoon forecasts, normalizing base, positive terms of trade, etc) for now than negative drivers – unless monsoon disappoint, the management said earnings call.

Incrementally for M&M on the automotive front, focus is shifting from supply constraints earlier to demand generation now, given the sharp run-down in the orderbook (226K units now vs. 286K in Q2); in tractors, at least the near-term outlook appears challenging, said analysts at Emkay Global Financial Services.

Choice Broking expects the automotive segment to register healthy growth in coming years. Additionally, in the tractor segment, a series of launches are underway in various categories, which will support the growth of the Farm Equipment segment. Further, launches in the Farm machinery segment (high margin) are also expected to do well going forward, the brokerage firm said in result update.

M&M’s auto business is expected to be the key growth driver for the next couple of years on the back of its healthy order backlog and new launches. The near term outlook for tractors remains weak, but the brokerage firm Motilal Oswal Financial Services expect tractor demand to revive to mid-single digit growth amid favorable indicators.

Domestic tractor industry is expected to decline by 10 per cent/5 per cent during Q4/FY24 owing to muted demand and inventory correction. Normal monsoon remains a key enabler for FY25. In the auto segment, supply constraints have largely eased. Gradual addition to SUV capacity (by Q4FY24), high outstanding bookings (226k+ units) and healthy new bookings’ rate are likely to drive sales growth. Higher operating leverage and benign commodity costs are expected to support the margin performance going ahead, according to analysts at JM Financial Institutional Securities.