Shares of Mahindra & Mahindra (M&M) rallied 4.3 per cent to Rs. 1,527 per share on the BSE on Monday after the company reported a 60 per cent year-on-year (YoY) jump in consolidated profit after tax (PAT) to Rs. 3,508 crore in the April-June quarter (first quarter, or Q1) of 2023-24 (FY24).
So far this calendar year, the stock of the sport utility vehicle (SUV)-to-tractor manufacturer has jumped 21 per cent, compared to an 8 per cent rise in the S&P BSE Sensex.
The stock has recovered after falling sharply on July 26 when the company announced that it is taking a 3.53 per cent stake in RBL Bank for Rs. 417 crore. Given investor concerns about unrelated investments, the management has reiterated its commitment to maintaining a disciplined approach towards capital allocation and will continue to focus on its core areas.
It indicated that the investment was to gain insights into the banking industry, and any further increase would depend on whether it made strategic sense. The company’s efforts to assuage investor concerns and no change in capital allocation policy are expected to boost investor confidence, believes analyst Himanshu Singh of Prabhudas Lilladher Research.
In the recently concluded quarter, the company’s consolidated revenue rose 19 per cent YoY to Rs. 33,892 crore. Earnings before interest, tax, depreciation, and amortisation (Ebitda) also increased by 46.5 per cent YoY to Rs. 3,547 crore in Q1 of 2022-23 (FY23), while Ebitda margin improved to 14.6 per cent.
Moreover, the company booked Rs. 870 crore from stake sales in Mahindra CIE Automotive, Sanyo, and gains from the relisting of SsangYong.
Segment-wise, SUV volumes grew 32 per cent YoY and 1 per cent quarter-on-quarter (QoQ) in Q1FY24. Total tractor volume, on the other hand, declined 3 per cent YoY but increased 28 per cent QoQ, driven by healthy monsoon trends in July.
Going ahead, the management expects a healthy recovery in the second half of this financial year (FY24).
“The growth gems are on track to achieve over $1 billion valuation over three to five years. The company remains committed to sustaining at least 18 per cent return on equity for its group operations,” they added.
Brokerages also maintain a ‘buy’ on the counter.
Analysts at Nuvama Institutional Equities, for instance, said that M&M’s core 2024-25 estimated (FY25E) price-to-earnings ratio of 10x is inexpensive. Better net pricing in the automotive (auto) segment would boost profitability, driving core earnings annually of 20 per cent over FY23–25E; this would sustain the after-tax return on invested capital at 30 per cent plus.
Stock catalysts include production ramp-up (auto) and incremental announcements pertaining to electric vehicles, added the brokerage. Nuvama has a target price (TP) of Rs. 1,790 per share.
Analysts at LKP Securities, too, remain bullish on M&M, with a TP of Rs. 1,727 apiece.
“We maintain a ‘buy’ for M&M on attractive valuations, in line with our assumptions of margin improvement on the increase in volumes and value of SUV, three-wheelers, and light commercial vehicle segments,” the brokerage firm added.
That apart, the board recommended a final dividend of Rs. 16.25 per share. Besides, it also approved the merger of its wholly-owned subsidiaries Mahindra Heavy Engines, Mahindra Two Wheelers, and Trringo.com with the company for streamlining the holding structure.