Mahindra & Mahindra’s share price: ICICI Securities pegs target at Rs 1040

ICICI Securities says that Mahindra & Mahindra’s Q4FY21 result was slightly below consensus estimates as EBITDA margin came in at 14.7% (down 227bps QoQ). Margins were dragged by the automotive segment (EBIT margin: 5%, down 243bps), while FES (Farm Equipment Sector) was resilient (EBIT margin: 22%, down 139bps). M&M’s Management shared a new product plan (5-years) for SUVs (9 products) /LCVs (14 products), and pure EV options (6 products) would also be developed. Investments into electric (Rs 30 bn) signals clarity of strategy as M&M would be able to build a learning curve advantage vis-a-vis domestic peers who are investment shy on EVs. M&M’s Management is aggressive to gain market share in FES business is likely to sound sweet to investors and their long term growth outlook also remains bullish (15-20% CAGR over the next 3-5 years). Valuations remain attractive. Maintain BUY on M&M says ICICI Securities.

The change in M&M’s management and the evolution of focused capital allocation strategy (RoE >18%) has been well appreciated by investors. The strategy now is entering growth acceleration phase; ICICI Securities expects H2 to witness strong pickup across PVs (led by new launches) as supply-chain woes fade away. ICICI Securities revise their EPS estimates by -1%/2.8% for FY22E/23E, respectively, maintain target multiple to 8.5x FY23E EBITDA (Rs 710/share) and value subsidiaries at Rs 330/share to arrive at SoTP-based target price of Rs 1040/share (earlier was Rs 1045). ICICI Securities maintain BUY on the stock.

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M&M’s management expects to fund the group investments via dividends received from established subsidiaries. 23 new models have been launched including 9 new products in the auto segment and 14 in the LCV segment which will be launched in the next 5 years. Thar continues to witness very strong order book of 55k+ bookings; XUV300 too is witnessing 12+ weeks waiting, says ICICI Securities