People wait in the main reception area of Mahindra & Mahindra Ltd., in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

New Launches, Good Monsoon To Drive M&M’s Growth, Brokerages Say

Most brokerages upped their target price while maintaining their bullish rating on Mahindra and Mahindra Ltd., citing prospects of good monsoon and a slew of new launches lined up this year.

The automaker reported a 50 percent profit jump in previous quarter at Rs 1,155 crore, beating consensus estimates of analysts tracked by Bloomberg, which stood at Rs 1,050 crore.

Shares of the automaker rose 1.5 percent to Rs 885 on the National Stock Exchange, their second day of increase. The stock has gained 28.62 percent in the last one year as compared to a rise of 12.34 percent by the S&P BSE Sensex.

CLSA has increased the target price on M&M by nearly 12 percent to Rs 1,075, while maintaining its ‘Buy’ rating. M&M’s volume outlook remains healthy given strong demand in tractors and light commercial vehicles, which form around 70 percent of its earnings before interest and tax, CLSA said in a note.

Launch of a new multi-purpose vehicle in financial year 2018-19 has the potential to boost the company’s volume growth.
CLSA Note

Here's what some other brokerages had to say about about M&M:

Morgan Stanley

  • Maintain ‘Outperform’ rating, with a target price of Rs 1,063.
  • While 85 percent of utility vehicles sold in India are diesel powered, M&M is ramping up its petrol and electric vehicle capabilities so that in the long run the business will be agnostic to changing trends.
  • Risks: New launches by M&M fail to garner volumes, and rising competition erodes Ebitda margins.

Deutsche Bank

  • Maintain Buy, raise target price to Rs 975 from Rs 900.
  • Forecast FY18-20 earnings per share estimates to grow at a compounded annual growth rate of 18 percent and maintain Buy with a target price of Rs 975.
  • Expect tractor growth in the current financial year at 10 percent.
  • Key trigger for the stock would be performance of two important SUV launches – a new MPV and a small crossover (based on Ssangyong Tivoli).

Nomura

  • Maintain Buy, raise target price to Rs 1,049 from Rs 965.
  • Expect new launches in utility vehicles to drive growth in FY19/20F.
  • Tractor growth also likely to remain strong, led by an improving rural demand outlook.
  • Company expects to grow faster than the industry in automotives.
  • Company expects to sustain margins on pricing action and cost control despite rising commodity costs.

Jefferies

  • Maintain Buy, raise target price to Rs 975 from Rs 860.
  • Higher government spend on rural economy and infrastructure ahead of 2019 elections and decent monsoon should help sustain the tractor cycle at least in FY19 estimates.
  • Overall buoyant economy and relatively low base should help sustain the LCV cycle too.
  • Expect acceleration in growth helped by three new launches in the relatively weaker passenger vehicle business.