M&M Rating Raised To 'Buy' By Kotak As Revival Seen In Tractor Industry

Mahindra & Mahindra Ltd. got its ratings upgraded to 'buy' from 'add' by Kotak Institutional Equities, that cited a favourable risk-reward profile following the recent correction in the stock price.

The brokerage has, however, cut the target price on the stock to Rs 3,150 apiece from Rs 3,300 earlier, implying an upside of 15.43% from the current market price of Rs 2,729. 

Kotak expects the tractor industry to recover in the second half of the current fiscal, driven by several positive factors. Analysts anticipate high single-digit volume growth, supported by increased reservoir levels and a favorable monsoon, both of which are essential for the upcoming Rabi season.

The implementation of higher minimum support prices for key crops is also expected to bolster demand, helping the domestic tractor market to achieve an estimated 5% year-on-year growth in fiscal 2025. M&M has already outpaced the industry in the first half of the fiscal, due to the successful launches under its Swaraj and Oja brands, according to Kotak.

M&M remains well-positioned to navigate the slowdown in the domestic passenger vehicle segment that has shown muted growth due to the weak consumer sentiment and a challenging entry-level market. The SUV segment has experienced robust demand, with a 12% year-on-year growth, largely fuelled by consumer preference for new models and M&M's strong market share in the compact and large SUV categories.

The brokerage also noted that M&M's domestic volumes surged by over 15% year-on-year in the first half of the fiscal, with flagship models like the XUV 700 and Scorpio driving sales.

India's domestic light commercial vehicle segment faces challenges with total volumes falling 6% year-on-year in the first half of fiscal 2025 while those of M&M fared slightly better with a 2% drop, indicating market share gains, Kotak said. Despite the current weakness, Kotak anticipates a gradual recovery in the LCV market driven by growth in the e-commerce segment and increasing demand for last-mile mobility solutions.

Kotak has adjusted its financial year 2025-2026 standalone earnings per share estimates downward by 1-4%, mainly due to reduced LCV volume projections and anticipated margin pressures from higher discounts and costs associated with capacity ramp-ups. Despite these revisions, the brokerage remains optimistic about M&M's overall performance, bolstered by ongoing product launches and improvements in return ratios.

As M&M continues to execute its strategy effectively across its segments, it stands out as a "top pick" for investors seeking growth in the automotive sector. The stock is currently trading at an "attractive valuation" of 20 times fiscal 2026 core earnings per share, reiterating the rationale behind the brokerage’s bullish stance.

Shares of M&M rose as much as 5.47% during the day to Rs 2,971.75 apiece on the NSE. The stock was trading 0.69% higher at Rs 2,845.90 apiece, compared to an 1.77% decline in the benchmark Nifty 50 as of 11:56 a.m. 

The stock has risen 91.09% in the last 12 months and 64.48% on a year-to-date basis. The total traded volume so far in the day stood at 2.8 times its 30-day average. The relative strength index was at 46.29.

Thirty six out of the 41 analysts tracking M&M have a 'buy' rating on the stock, four recommend a 'hold' and one suggests a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 18.1%.