M&M Stock Gains As Analysts Stay Upbeat Despite Supply-Side, Input Cost Pressures
Analysts expect Mahindra & Mahindra Ltd. to benefit from a recovery in demand for automobiles, a strong product pipeline and opportunities in the farm machinery segment even as semiconductor shortage and raw material costs prevail.
“We note that a strong launch product pipeline, low channel inventory and robust demand should support volume,” Nirmal Bang Institutional Equities said. M&M’s focus on its capital allocation strategy will improve return on equity, it said in a report.
M&M saw its first-quarter profit before tax and one-time items decline as demand eased during the second wave of the pandemic and on supply-side issues. Its revenue, operating income also declined over the preceding three months, and margin contracted.
Shares of M&M were trading 2.73% higher as of 1 p.m. on Monday compared with a flat Nifty 50. Of the 41 analysts tracking the company, 36 recommend a ‘buy’, and five have a ‘sell’ rating, according to Bloomberg data.
Here's what brokerages have to say about M&M after the first-quarter FY22 results:
Nirmal Bang Institutional Equities
Maintains ‘buy’ with a target price of Rs 972, implying an upside of 28% from Friday’s close.
M&M's revenue 3% below expectation due to under-recovery of raw material cost inflation and lag in price hikes.
Overall Ebitda margin at 13.9% (down 80 basis points QoQ) was broadly in line with the brokerage’s estimate of 14%.
Strong momentum in the auto segment, led by new launches.
Semiconductor shortages and raw material cost inflation remain key challenges.
Strong launch product pipeline, low channel inventory and robust demand should support volume.
Tractor segment growth and margin expected to moderate from recent highs, and expected to outperform the industry as supply chain constraints ease.
Maintains ‘buy’ with a target price of Rs 914, implying an upside of 21% from Friday’s close.
Growth opportunities in the farm machinery segment are high and expect double-digit growth for the next couple of years
Demand is strong with high waiting periods in UVs — Thar (10 months), XUV300 (two months.) and Bolero/Scorpio (four-six weeks).
Company continues to follow up on its commitment of prudent capital spending and curtailing loss-making subs.
Despite short-term hiccups, the brokerage maintains positive stance on M&M on the back of strong order book in automobile, cost reduction exercise along with curtailing losses in subsidiaries and strong free cash flow generation.
Expects tractor demand to moderate in the second half of financial year 2022 due to high channel inventory (four weeks) and high base (In FY21.
Maintains ‘buy’ with a target price of Rs 890, implying an upside of 17% from Friday’s close.
Auto growth to be driven by new launches, good demand in key models.
Growth in tractor is slowing, particularly on the high base of FY21.
Expects the auto business to take over the growth mantle from tractor.
MM’s SUV business is severely challenged. The brokerage does not see any respite for the company in this category in the foreseeable future.
Maintains ‘buy’ with a target price of Rs 920, implying an upside of 21% from Friday’s close.
Market share to improve on new products and ramp-up in production.
M&M has a healthy pipeline of new products in passenger vehicles, commercial vehicles and tractors.
Farm equipment revenues are likely to witness a subdued performance.
Auto revenue should grow strongly at a 23% CAGR on a sales upcycle and a healthy order book.
Maintains ‘buy’ with a target price of Rs 961, implying an upside of 27% from Friday’s close.
Resilient performance in a challenging quarter.
Remains positive for M&M considering its continuing momentum in the tractor industry, and strong product pipeline in UVs and tractors
Strong focus on turnaround of international subs (farm equipment sector and auto) leading to reduced losses.