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:

• 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.