Top pick in OEM space! M&M can rally up to 25%, says Nomura

“M&M remains our top pick. The company has been gaining a share across segments. We raise SUV volume growth to 58.5%/18%/ 8.5% for FY23F/24F/25F (~2% increase). We see upside from, in Born EVs, farm implements, and investments,” Nomura said.

Nomura further said that it was impressed with the attractive designs of ‘Born Electric’ vehicles, which were showcased at the Mahindra EV Festival on February 10, 2023 in Hyderabad. These e-SUVs are based on the INGLO platform, which is technologically very advanced. INGLO has the capability to pack high density batteries (of 60-80kWh) with up to 700 NM torque.

“M&M has also been enhancing its brand appeal, with its focus on core SUVs. Hence, ASPs have the potential to rise further when these e-SUVs are launched. Also, if current regulatory support continues, EV penetration for M&M could even reach 30-40% by FY27F vs guidance of 20-30%, in our view,” the brokerage firm said.

M&M’s tractor division growth outpaced the industry at ~15% year-year (YoY) in 3QFY23. Its market share improved sequentially to ~41% in 3QFY23, compared with ~40.1% in 2QFY23. Nomura expects M&M’s tractor division’s growth to be higher than the overall industry, as it factors in a higher market share.

For the December ended quarter, the auto major posted 14% growth in standalone net profit at Rs 1,528 crore for the quarter ended December 2022. The company had reported a net profit of Rs 1,335 crore in the same period last year. Revenue from operations, meanwhile, surged 41% YoY to Rs 21,654 crore in the December quarter.

The brokerage said, “3QFY23 revenue numbers were largely in line with our and Bloomberg consensus estimates. EBITDA margin at 13% (up ~110bp q-q) was in line with our/consensus estimates of 13%/12.8%. Adjusted PAT increased 51% q-q to Rs 20.2 billion, compared with our estimate of Rs 16.4 billion.”In management commentary, M&M said that the SUV order book increased to 266k+ (260k in 2QFY23), partly offset by cancellations in Scorpio-N on high waiting periods. Order inflow was strong at ~50k/month. XUV400 clocked 15,000 bookings in 13 days.