Shares of Mahindra and Mahindra (M&M) surged by 4.3 per cent to Rs 1,527 per share on the BSE on Monday, following the company’s announcement of a 60 per cent year-on-year jump in consolidated profit after tax to Rs 3,508 crore in the April to June quarter of the financial year 2024 (Q1FY24). Thus far this calendar year, the stock of the sport utility vehicle to tractor manufacturers has jumped by 21 per cent, compared to an 8 per cent rise in the S&P BSE Sensex.
The stock has rebounded after a sharp drop on 26 July when the company declared it would be taking a 3.53 per cent stake in RBL Bank for Rs 417 crore. In response to investor concerns about unrelated investments, the management has reassured that it remains committed to a disciplined approach to capital allocation and will continue to concentrate on its core areas.
The management indicated that the investment was made to gain insights into the banking industry, and any future increase would depend on whether it aligns with strategic sense. Himanshu Singh of Prabhudas Lilladher Research believes that the company’s efforts to assuage investor concerns and the consistency in capital allocation policy should boost investor confidence.
In the recently concluded quarter, the company’s consolidated revenue grew by 19 per cent year-on-year to Rs 33,892 crore. Earnings before interest, tax, depreciation, and amortisation also increased by 46.5 per cent year-on-year to Rs 3,547 crore in Q1FY24, while the Ebitda margin improved to 14.6 per cent.
Furthermore, the company recorded Rs 870 crore from stake sales in Mahindra CIE, Sanyo, and gains from the re-listing of SsangYong.
In terms of segments, sport utility vehicle volumes grew by 32 per cent year-on-year and 1 per cent quarter-on-quarter in Q1FY24. Total tractor volume declined by 3 per cent year-on-year but increased by 28 per cent quarter-on-quarter, supported by favourable monsoon trends in July.
Looking ahead, the management anticipates a strong recovery in the second half of this financial year.
“The growth gems are on track to achieve over $1 billion valuation over 3-5 years. The company remains committed to maintaining at least 18 per cent return on equity for its group operations,” they added.
Brokerages maintain a ‘buy’ position on the counter. Analysts at Nuvama Institutional Equities stated that M&M’s core FY25E price-to-earnings ratio of 10x is considered inexpensive.
Improved net pricing in the auto segment is expected to enhance profitability, driving core earnings annually by 20 per cent over FY24–25E; this would maintain post-tax return on invested capital at above 30 per cent. Stock catalysts include production ramp-up in autos and incremental announcements related to electric vehicles, added the brokerage. Nuvama has a target price of Rs 1790 per share.
Analysts at LKP Securities also remain bullish on M&M, with a target price of Rs 1,727 per share.
“We maintain a ‘buy’ for M&M due to attractive valuations, in line with our assumptions of margin improvement with increased volumes and value of sport utility vehicles, three-wheelers, and light commercial vehicles segments,” the brokerage firm added.
Additionally, the board recommended a final dividend of Rs 16.25 per share. 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.