Mahindra & Mahindra hits new high, up 3% on hopes of strong domestic demand

Shares of Mahindra & Mahindra (M&M) rallied 3 per cent and hit a new high of Rs 1,058.60 on the BSE in Friday’s intra-day trade on hopes of strong demand outlook. The stock of the passenger cars & utility vehicles maker surpassed its previous high of Rs 1,057.75 touched on June 2, 2022.

In the past one month, M&M has outperformed the market, gaining 12 per cent, when compared with a 2.6 per cent decline in the S&P BSE Sensex. In the last three months, the stock has rallied 38 per cent, against 9 per cent decline in the benchmark index.

To meet the growing demand (especially for XUV700 and Thar), the company has increased its capex plan for its Auto division from Rs 9,000 crore to Rs 11,900 crore. The management anticipates strong demand for its UV business with launch of Scorpio-N in June 2022.

The management said the company is witnessing strong bookings and have a robust pipeline. We announced the launch of Scorpio-N, which is generating very high interest levels and promises to be yet another blockbuster from Mahindra. The company’s commercial vehicles have also registered strong growth across segments.

The demand for tractors in the world’s largest market has seen a sharp 44 per cent jump year-on-year in the first two months of 2022-23, after some moderation in growth in 2021-22. M&M, which controls 40 per cent of the market, is leading the growth chart.

“With the timely arrival of the south-west monsoon and forecast of a normal monsoon, kharif crop is expected to deliver record production. Food prices continue to be high, ensuring better remuneration for farmers for their produce, creating a positive sentiment and higher demand for tractors and agri implements”, the management said.

Analysts at ICICI Securities retain BUY rating amid healthy demand prospects across M&M’s product profile, its focus towards capital efficiency and EV proactiveness.

“With operating leverage benefits at play, mix normalisation (high growth in relatively low margin automotive business) & focus on optimising cost; we expect 12.6 per cent EBITDA margins and around 13 per cent standalone RoCE by FY24E,” the brokerage firm said.

Consistent focus on prudent capital allocation (>18 per cent RoCE vision), aggressive EV launch plans (UVs, LCVs and 3-W) remain structural positives. Stepping up the capex spend to build capacities in response to robust demand prospects. Value creation initiatives to limit net cash outflow, are key triggers for future price performance, the brokerage firm said.

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