LKP Research has issued a BUY recommendation for Mahindra & Mahindra Limited (M&M), with a 12-month price target of Rs 3,891, indicating a potential upside of 22% from the current price of Rs 3,198. The company delivered a strong performance in Q3 FY25, driven by a 20.8% increase in revenues, robust demand for SUVs, and significant growth in the tractor segment. M&M's EBITDA margin improved to 14.6%, supported by favorable operating leverage. The report highlights the company’s continued market leadership and outlines a promising growth trajectory in both automotive and agricultural sectors.

Robust Financial Performance in Q3 FY25

Revenue and EBITDA Growth: M&M recorded a 20.8% year-on-year (YoY) increase in net sales, which stood at Rs 3,05,382 million for Q3 FY25. This growth was attributed to a 17.3% rise in sales volumes and a 3% improvement in average selling prices (ASPs). The company’s EBITDA rose by 42% YoY to Rs 44,681 million, driven by lower operational costs and benign raw material prices. The EBITDA margin expanded to 14.6%, up 180 basis points from the previous year.
Profit Trends: M&M's adjusted profit after tax (PAT) rose 24% YoY to Rs 30,481 million. However, on a quarter-over-quarter (QoQ) basis, PAT declined by 22%, primarily due to lower other income.

Strong Growth in SUV and Tractor Segments

Market Leadership in SUVs: The company achieved a 23% market share in the SUV segment, driven by new launches such as the XEV 9e, BE 6e, and strong demand for the XUV 700, Thar, and Scorpio models. M&M anticipates sustained growth in the segment with volumes projected to increase by mid-to-high teens in FY25.
Expanding Exports: The export business has also shown strong traction, contributing significantly to overall volume growth. The company expects export momentum to remain robust in the coming quarters.

Tractor Sales Surge: Domestic tractor volumes grew by 20% YoY, boosting M&M's market share to 44.2%. The tractor segment is expected to benefit from improved monsoon conditions, higher minimum support prices (MSPs), and increased agricultural output.

Strategic Capital Investments

Capex Plans: M&M has outlined a Rs 370 billion capital expenditure plan for FY25-27. This includes Rs 140 billion for the internal combustion engine (ICE) auto segment and Rs 120 billion for electric vehicles (EVs). The farm segment and other growth ventures will receive Rs 50 billion and Rs 60 billion, respectively.
Funding and Partnerships: The company has secured investments from prominent partners such as British International Investment (BII) and Temasek, which have committed to funding M&M’s EV initiatives.

Technical Analysis and Stock Levels

Price and Key Metrics: M&M's stock is currently trading at Rs 3,198, with a 52-week high of Rs 3,271 and a low of Rs 1,623. The price-to-earnings (P/E) ratio stands at 28.9x, reflecting strong investor confidence in the company’s growth prospects.
Technical Indicators:

Candlestick Patterns: Recent daily charts show bullish candlestick formations, indicating upward momentum.
Fibonacci Levels: Key retracement levels are observed at Rs 3,000 (38.2%) and Rs 2,800 (61.8%), providing potential support points in case of a pullback.
Support and Resistance: Strong support is at Rs 3,100, while resistance is near Rs 3,350, the recent peak. A breakout above this resistance could lead to further gains.

Industry and Competitive Position

Leading Competitors: Tata Motors and Ashok Leyland are M&M's key competitors in the domestic automotive market. While Tata Motors leads in the passenger EV segment, M&M has carved a strong niche in SUVs and tractors. Ashok Leyland focuses primarily on commercial vehicles, making M&M’s diversified portfolio a key advantage.
Industry Outlook: The automotive and farm equipment sectors are poised for steady growth, supported by government initiatives and rising rural demand. M&M’s investments in EVs and new product development will help the company maintain its competitive edge.

Analyst Recommendations and Valuation

Analyst View: LKP Research has reiterated a BUY recommendation with a target price of Rs 3,891, representing a 22% upside. Analysts cite M&M’s strong market positioning, robust financials, and strategic growth initiatives as key drivers for this outlook.
Valuation Metrics:

P/E Ratio: 28.9x (FY25)
Price-to-Book (P/B) Ratio: 6.1x
Return on Equity (ROE): 21.0%
These metrics underscore M&M's attractive valuation compared to industry peers.

Outlook and Conclusion

M&M is well-positioned to sustain its leadership across multiple segments, driven by innovative product launches, strong demand for SUVs and tractors, and strategic investments in EVs. The company’s robust financial performance, coupled with favorable market conditions, provides a compelling growth narrative for investors. With LKP Research projecting a 22% upside, M&M remains a top pick for long-term portfolio growth.

Disclaimer

Investors are advised to conduct their own due diligence and consult with financial advisors before making investment decisions. The information in this article is based on research findings and market analysis.