ICICI Securities has upgraded Mahindra & Mahindra (M&M) from ADD to BUY, increasing the target price to Rs 3,500 (from Rs 3,200) following strong Q4FY25 results, better-than-expected margins, and an encouraging SUV pipeline. The company’s FES segment outperformed on operating metrics, while capacity expansion plans and aggressive EV launches bolster the long-term outlook. With FY26–27 EPS upgraded by 8–9% and a 24x P/E multiple applied to FY27E core EPS, ICICI remains bullish on M&M’s multi-segment dominance. Risks persist in global tractors and EV adoption, but domestic growth momentum keeps the valuation compelling.

1. Margin Performance: FES Drives Earnings Beat

M&M reported an EBITDA margin of 14.9% in Q4FY25, up 180bps YoY and beating expectations. The Farm Equipment Segment (FES) led the charge with a sharp 370bps YoY margin expansion to 19.4%, driven by favorable input costs and product mix. The automotive segment remained steady with a 9.2% EBIT margin, marginally lower sequentially due to electric SUV ramp-up costs.

2. SUV Growth Outpaces Industry; Capacity Set to Surge

Mahindra’s SUV revenue market share rose 310bps YoY to 23.5% in Q4FY25, with overall PV growth clocking 20%. The company aims to expand monthly production capacity from 61,500 units to 85,000 units by FY27, backed by debottlenecking models like Thar and XUV3XO. Mahindra plans to launch three ICE SUVs, two battery EVs, and two LCVs in 2026.

3. Electrification Strategy Gathers Momentum

Mahindra delivered ~6,300 eSUVs in just 40 days, with a four-month waiting list. Higher ASP variants currently dominate the EV mix. EBITDA margin from the combined BEV vertical stood at 1%. The company is banking on its new EV platform launch scheduled for August 15, coupled with 120,000-unit capacity at Chakan, to strengthen its electric portfolio. PLI certification is expected by Q2FY26.

4. Tractor Segment Accelerates; Global Headwinds Persist

Tractor volumes rose 23% YoY in Q4, boosting domestic market share by 180bps to 41.2%. While domestic demand outlook for FY26 remains robust (high-single-digit growth expected), international operations faced challenges in the U.S. due to macro weakness. Losses persisted in that region, but retail share improved in Q4, indicating a potential turnaround.

5. Financial Snapshot: Revenues, Profits, and Valuations

FY25 revenue jumped 17.9% YoY to Rs 11.64 trillion, with PAT at Rs 1.19 trillion and EPS of Rs 98.7. Forecasts for FY26–27 indicate a 14–17% CAGR in profit. ICICI expects FY27 EPS to reach Rs 144.3, implying a forward P/E of 20.9x. EBITDA margins are expected to stabilize around 14.5–14.9%.

6. Strategic Valuation: SoTP Suggests Rs 3,500 Fair Value

ICICI values the core business at Rs 3,060 (24x FY27E EPS) and subsidiaries at Rs 440, aggregating to Rs 3,500 per share. Key listed investments include Tech Mahindra, Mahindra Finance, Mahindra Life, and Swaraj Engines. Each subsidiary is discounted by 20% to ensure conservative upside realization.

7. Cash Flow and Balance Sheet Strength

M&M generated Rs 2.06 trillion in operating cash flow in FY25, with Rs 1.07 trillion in cash and equivalents. The company has been deleveraging aggressively, reducing borrowings to Rs 16.8 billion and maintaining a net debt-to-equity ratio of -0.4x, offering capital flexibility for future investments and buybacks.

8. Risks to Monitor

Slowing UV sales post-COVID boom, tepid EV adoption, and potential rural stress remain risks. Moreover, any deviation in disciplined capital allocation or global tractor demand contraction could impact forecasted EPS growth.

9. Q4FY25 Operational Metrics Overview

10. Investment View

ICICI upgrades M&M to BUY with a revised 12-month target of Rs 3,500, indicating a 16% upside. The stock offers a well-balanced exposure to India's growth story via autos, farm mechanization, and electrification. With a strong moat in SUVs and tractors, expanding EV credentials, and a clean balance sheet, M&M remains a high-conviction pick for long-term portfolios.