Mahindra & Mahindra Q1 Review- Core Auto, Farm Equipment Segment Performance Continues To Grow: Yes Securities

Yes Securities Report

Mahindra & Mahindra Ltd. Q1 FY24 results were better than our/street led by higher blended average selling price at Rs 805,500/unit (-0.5% YoY versus estimate of Rs 790,000/unit) and lower other expense at Rs 16.6 billion (-12.7% QoQ versus 6.6% growth in revenues) led to Ebitda beat at Rs 32.3 billion (estimate Rs 30.7 billion).

This was further helped by higher other income at Rs 9.7 billion (estimate Rs 6.2 billion, +1.8 times QoQ) lead to adjusted profit after tax beat at Rs 27.7 billion (estimate ~Rs 22 billion, +34% QoQ).

The key highlight of the quarter was continued increase in auto segment margins (Ebit) at 7.5% (+220 bp YoY/ +40 bp QoQ) and tractors margins at 17.5% (+110 bp QoQ).

We reckon, margins to remain at an elevated level led by-

1. price hikes and end of introductory pricing for XUV7OO, Thar and Scorpio N,

2. moderating raw material inflation and

3. cost controls.

The second highlight of the quarter was auto order book which remained healthy at 281,000 units as of August 2023 (versus 292,000 as of May 2023) where Maruti Suzuki India Ltd. order book declined QoQ to 355,000 units in Q1 FY24 (versus 412,000 in Q4 FY23).

We upgrade our FY24/25 earnings per share by ~3.5-4% each to factor in for better average selling prices and margins in farm equipment segment.

While we expect auto business to lead the growth over FES, deterioration in the mix would restrict revenue/Ebitda/profit after tax compound annual growth rate to ~11.4%/18.5%/19.5% over FY23-25E. Implied core price/earning for M&M stands at 12.7 times/10.7 times FY24/FY25E EPS is attractive.

Hence, we maintain 'Add' rating on the stock with revised SoTP based target price at Rs 1,674 (versus Rs 1,625 earlier) on Marchh-25 EPS.

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