Street remains unimpressed by M&M's better-than-expected margin growth; what should investors do?

Mahindra & Mahindra (M&M) shares remained under pressure on Monday, after the auto maker reported a largely better-than-expected set of results for the third quarter of the current financial year. Brokerages see up to 26 per cent upside potential in the stock, banking on the company's strong business growth.

M&M Q3 results

During market hours on Friday, M&M reported a 14 per cent year-on-year rise in profit after tax (PAT) to Rs 1,528 crore for the quarter ended December 2022 driven by robust sales. The Mumbai-based auto maker’s revenue surged 41 per cent to Rs 21,654 crore. According to Zee Business research, M&M's quarterly net profit was estimated at Rs 1,850 crore and revenue at Rs 21,550 crore. 

Its operating profit came in at Rs 2,814 crore, as against the Zee Business estimate of Rs 2,730 crore. 

The company said it sold a total of 1,76,094 vehicles during the three-month period, up 45 per cent from 1,21,167 vehicles in the corresponding period a year ago.

Read more on Mahindra & Mahindra Q3 results

What brokerages make of Mahindra & Mahindra 

According to CLSA, M&M's Q3 numbers were marginally below expectations due to a lower-than-expected tractor EBIT margin. The brokerage maintained an ‘outperform’ rating for M&M and reduced its target price to Rs 1,583 from Rs 1,592 apiece.

Morgan Stanley and JPMorgan each maintained an ‘overweight’ rating on the stock, with targets of Rs 1,472 and Rs 1,520 per share respectively.

According to Morgan Stanley, there is no near-term catalysts M&M, but it remains positive on the comapny's strong execution and electric vehicle (EV) focus.

Goldman Sachs and Nomura have the highest target price on M&M among brokerages, at Rs 1,600 and Rs 1,718 apiece respectively. 

Nomura finds M&M very impressive with attractive designs and the next generation of technology, mainly in EVs. It also sees investment in the auto company as "growth gems".

Jefferies raised its target price to Rs 1,165 from Rs 1,100 apiece.

M&M share price history

The M&M stock has jumped more than 66 per cent in the last one year, sharply outperforming a six per cent gain in headline index Nifty50.

M&M shares declined by Rs 9.3 or 0.6 per cent to settle at Rs 1,363 on Friday after the company's earnings announcement. 

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