Analysts Upbeat On Mahindra & Mahindra After Q3 Earnings
Tractors sit in a lot awaiting shipment at the Mahindra & Mahindra Ltd. Plant in Mumbai, India. (Photographer: Abhijit Bhatlekar/Bloomberg News)

Analysts Upbeat On Mahindra & Mahindra After Q3 Earnings

Analysts retained their bullish investment recommendations for Mahindra & Mahindra Ltd. and raised their price targets, as the automaker streamlines its subsidiaries and sales improve at its tractor unit.

The Anand Mahindra-led company’s profit rose 40% year-on-year to Rs 530.9 crore in the quarter ended December but missed estimates owing to an exceptional item worth Rs 1,213.98 crore. Revenue rose 14% over the preceding year to Rs 14,056.5 crore.

To be sure, India’s largest tractor maker has been grappling with prolonged supply chain issues. It said in December a global shortage of semiconductors supplied by Bosch Ltd. is expected to lower production and sales in the last quarter of the ongoing financial year. That’s expected to hurt efforts to accelerate production at a time when Indian auto firms are trying to make up for the washout seen in the pandemic months.

Shares of the Mumbai-headquartered firm rose 7.2% to Rs 928 on Feb. 8. Of the 41 analysts tracking the company, 36 have a ‘Buy’ rating, two have ‘Hold’ rating, while three suggest ‘Sell’, according to Bloomberg data.

Also read: M&M Q3 Results: Less-Than-Expected Profit On Exceptional Item, Uncertainty On SsangYong Sale

Here’s what brokerages have to say about M&M’s third-quarter results…

Nomura

  • Target price hiked from Rs 923 to Rs 1,165.
  • Government’s focus on rural infrastructure and good crop production to drive rural demand.
  • Strong tractor demand due to healthy rural income levels, good monsoons and low inventory levels in the system.
  • Utility vehicle product launch pipeline remains strong.
  • Capital allocation guidance plan nearly complete. International business loss may fall to Rs 300 crore by FY22 and turn profitable by FY23.

Elara Capital

  • Target price hiked from Rs 945 to Rs 1,008.
  • Management focus on capital allocation policies is on track.
  • Tractors growth to remain buoyant until Q1 FY22.
  • Strong order book for Thar and expected bounce back of the LCV segment may drive annualised growth of 17% in automotive volume.

Emkay Global

  • Maintains ‘Buy’ rating; target price hiked from Rs 824 to Rs 1,020.
  • Expect robust revenues/earnings at annualised growth of 19%/22% for FY20-23E.
  • Positive on expectations of healthy demand prospects and stringent capital allocation efforts.
  • Key risks include delay in economic recovery, weak monsoon in 2021, failure of new products, and increase in competitive intensity and input prices.

Prabhudas Lilladher

  • Target price hiked from Rs 841 to Rs 1,011.
  • Sharp focus and execution on capital allocation to help prioritise investments and returns.
  • Strong product pipeline in utility vehicle and tractor segments to aid outperformance.
  • Lowest system stock since Q1 FY18 both in farm equipment and auto segments.
  • Challenges related to semiconductors shortage to impact LCV and UV volumes till Q1 FY22.

Motilal Oswal

  • Maintain ‘Buy’ rating, with target price of 1,040 apiece.
  • Demand outlook positive; expect sharp reduction in FY22 subsidiary loss.
  • Valuations for M&M are still at a substantial discount to its five-year average, due to deteriorating UV market share and subsidiaries’ performances.
  • Supply-side issues are easing.
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