Shares of Mahindra & Mahindra (M&M) rose about 3% in trade on BSE on July 11, underpinned by the positive views of the brokerage firms, after the company raised funds for its new electric vehicle (EV) unit at a $9.1 billion valuation and is exploring a partnership with Volkswagen AG to source such EV components as batteries and motors.
The stock closed 2.86% higher at ₹1,165.05 on BSE.
As Mint reported earlier, Mahindra on July 7 raised $250 million from British International Investment for the unit and is exploring a partnership with Volkswagen AG to source such EV components as batteries and motors.
British International Investment will invest ₹1,930 crore in the passenger EV subsidiary of M&M at an equity valuation of $5.3-9.1 billion.
Analysts and brokerage firms highlighted that the newly formed subsidiary will invest in EV products as they believe electrification in PVs can accelerate amid favourable government policies, development of EV-specific infrastructure and accessible pricing along with higher range.
Global brokerage firm CLSA has a 'buy' rating on M&M, while it raised the target price of the stock to ₹1,486 from ₹1,356. As per CNBC-TV18, CLSA sees a strong pipeline of EV SUV launches ahead for the company.
Domestic brokerage firm Kotak Securities has a 'buy' call on the stock with a target price of ₹1,400.
"We have increased our FY23-25 standalone EPS estimates by 9-12 percent on (1) higher volume assumptions led by strong performance of UV portfolio and (2) marginally higher EBITDA margin assumptions due to RM tailwinds offset by a weaker product mix," said Kotak Securities.
"While we await the EV launch in September 2022, we believe the company can make significant strides in electric SUV space with accessible pricing and a higher range of products. We increase our fair value to ₹1,400 (from ₹1,180 earlier) due to the increase in value of UV business on higher volume assumptions and higher multiple. We value UV business at 14 times September 2022 EV/EBIT multiple (versus 10 times June 2022 EV/EBIT multiple earlier)," the brokerage firm added.
Another brokerage firm Emkay Global also has a 'buy' call on the stock with a target price of ₹1,390 as it said it is positive on M&M due to the sales upcycle across segments and a large orderbook in PVs (nearly 170,000 units).
"We raise FY23-24E EPS estimates by 5% based on a 3% increase in our volume assumptions. Following the revision, our FY22-24E revenue/earnings CAGRs stand at 22%/24%," Emkay Global said.
"We retain buy with a higher SOTP value of ₹1,390 ( ₹1,250 earlier), as we add ₹233/sh for the E-PV subsidiary, based on 3.3 times FY27E EV/sales, discounted to present value. However, the standalone fair value has reduced by 10% as we factor in the valuation of only ICE-PV business," Emkay added.
JM Financial also has a buy call on the stock with a revised target price of ₹1,375 (from ₹1,100 earlier). JM Financial said the implied valuation of the domestic EV PV business is up to $9.1bn in FY27. Considering an average of the implied valuation and discounting it to FY23, it arrived at a valuation of up to ₹40,000 crore which implies up to ₹330/sh contribution to the SOTP.
"We arrive at a discounted value of ₹170-260 if we assume (a) total domestic PV market of 4.2mn units by FY25, (b) 5% industry EV penetration (c) M&M’s EV market share at 20%-30%, (d) ASP of ₹1.35mn/unit and (e) EV/sales multiple of 6 times (Tesla trades at around 8-9 times while Chinese EV OEMs trade at nearly 4 times)," said JM Financial.
"We await the unveiling of EV strategy by M&M next month. Further, improvement in margin profile and strong order momentum (nearly 1,43,000 open bookings) in auto business owing to back-to-back successful launches warrants increase in core multiple from 14 times to 16 times," JM Financial added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.