M&M Can See a 40% Upside If It Demerges Like Tata Motors But The Road Will Be Tricker
A HSBC report expects the business to grow 16% in the next fiscal against the industry growth of 5%.
There have been questions on what will happen if auto major Mahindra and Mahindra Ltd. decides to follow a similar path taken by its competition Tata Motors Ltd., which has announced a demerger of its commercial and private-vehicle business.
If the company does demerge, there will be significant value unlocking for investors, but it would "be a lot tougher for M&M to follow a similar restructuring", HSBC Global Research said in a report on Monday.
The report adds that if M&M decides to demerge, the upside would be around 40% if the company decides to follow a similar restructuring to Tata Motors but the road will be tougher too.
One of the major differences would be that M&M would need to demerge into three entities that would include the farm business, auto business and the holding company.
M&M's market share in the light-commercial-vehicle segment has consistently improved in the past three years, the report said. The LCV market share is close to all-time high of 50% and HSBC expects an 8% growth in the LCV volumes in the next financial year.
The company's SUV volumes are stable, and HSBC expects the business to grow at 16% in the next fiscal against the industry growth of 5%.
While the tractor outlook has been a worry, it can now be seen as improving with a 14% year-on-year growth in the retail sales, HSBC said. "We believe current channel inventory is still higher than the normalised run rate and is, therefore, likely to impact March WS volumes as well."
Looking at the fiscal 2026 estimates, valuation tailwinds and strong offtake for new launches, HSBC has increased the target price to Rs 2,300 apiece from the previous Rs 1,900 per share. It maintains a 'buy' rating with an upside of 21.2%.
The firm values M&M's core business at a target EV/Ebitda of 12 times, higher from the earlier 11 times.
Shares of M&M were trading 0.25% lower at Rs 1,892.90 apiece on the NSE, compared to a 0.11% advance in the benchmark Nifty 50 at 9:29 a.m.
