M&M shares surge over 50% in 2022; Does this auto major still has room to grow?

With a return of more than 54% so far this year, Mahindra & Mahindra (M&M) stands as the fourth-top gainer in the Nifty50 index. This was possible because of its strong fundamentals, a boost in capital expenditure, a drop in its raw material prices, and a significant rise in sales that have made it a standout performer.

Capital expenditure is nothing but money companies spend to set up new factories, upgrade machinery, etc. 

The stock has been rising since the beginning of March this year, from ₹690.55 to its current level of ₹1,293.45 per share, generating a return of 87.30 percent.

The stock's 52-week low and high levels were Rs. 671.2 apiece and Rs. 1,366.6 apiece, respectively. Taking Thursday's closing price of ₹1,293 into account, it has risen 92.69 percent from its 52-week low.

According to the domestic brokerage house, BoB Capital Markets (BoB Caps) the stock still has the potential to rise further. The brokerage is bullish on the stock as a result of its consistent financial performance and a robust order book.

The brokerage noted that the XUV700 is seeing strong bookings of over 8 to 9 thousand units per month with low cancellations of less than 5% despite the long waiting period of 18-20 months.

The demand for the "Scorpio Classic" is greater than the planned capacity, and the "Thar SUV" is expected to sell 5–6 thousand units per month. This has prompted capacity expansion to raise monthly production by 39K to 49K from Q4 FY23 to Q4 FY24 (excludes capacity expansion for electric vehicles), the brokerage said.

BOB Caps estimates a 21% revenue CAGR for the company over FY22–FY25. It also expects margin headwinds will ease with improved raw material availability, cost-cutting measures, price increases, and optimal utilization.

Considering the robust growth outlook, the brokerage maintained a "buy" call on the stock with a SOTP-based target price of ₹1,496 per share and valued the core business at 18x FY24E EPS.

New launches in the high-end segment and in EVs as well as export revival represent key rerating triggers, it added.

Meanwhile, the company reported a 56.19 percent rise in domestic passenger vehicle sales at 32,298 units in November 2022, as against 19,458 units sold in the same month last year.

The sale of Utility vehicles were at 30,238 units in November, compared to 19,384 units in the same month last year, while tractor sales rose 10% to 30,528 units from 27,681 during the same time period.

On the fundamental side, the net profit of M&M has been growing consistently for the last five quarters. The company reported a 43.768 percent increase in its consolidated net profit after tax to ₹2,773.7 crore for the quarter that ended in September. The company had posted a profit of ₹1,929 crore for the year-ago period.

The revenue for the quarter stood at ₹29,870 crore, a 39.12 percent jump over the corresponding quarter last year. The company reported revenue of ₹21,470 crore in QFY22.

During the second quarter, the company sold 1,74,098 vehicles from 99,334 units, an increase of over 75% compared to the similar quarter of last fiscal year.

An average of 43 analysts polled by MintGenie have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.