Shares of Mahindra & Mahindra (M&M) jumped almost 5 percent to hit their fresh 52-week high of ₹1,043.15 on BSE on May 31, buoyed by the company's March quarter results.
The stock finally closed 3.61 percent higher at ₹1033.90, extending the gains into the fourth consecutive session.
Many brokerage firms underscored that the automaker's Q4FY22 performance was above their estimate and a strong recovery in its auto business offset the weakness in the tractor business.
On May 28, the company reported a more than five-fold jump in standalone profit at ₹1,291.94 crore for the fourth quarter of the last financial year (Q4FY22). It had posted a profit of ₹245.19 crore for the year-ago period, the company said in a BSE filing.
Its revenue grew 28 percent to ₹17,124 crore in the quarter under review as compared with ₹13,356 crore in March quarter 2020-21.
The company said its auto business delivered the highest ever quarterly UV (utility vehicle) volumes in Q4 with 42 percent year-on-year (YoY) growth while farm equipment sector (FES) tractors market share for FY22 stood at 40 percent, a growth of 1.8 percent YoY.
After the upbeat Q4 numbers, the stock jumped nearly 5 percent in the next trading session on May 30.
Brokerages remain positive
Most brokerages came out with positive views on the stock after the automaker's impressive quarterly scorecard.
Motilal Oswal Financial Services has a buy call on the stock with a target price of ₹1,150, terming the company's Q4 numbers as better than estimates.
Motilal said while the outlook for tractors is improving, it expects the auto business to be a major driver of growth over the next couple of years, led by strong momentum in both SUVs (driven by new products and the easing of supply issues) and LCVs (cyclical recovery).
"We raise our FY23E/FY24E standalone EPS estimate by 12 percent and 7 percent to factor in an improving outlook for tractors. Valuations are still at a substantial discount to its five-year average, reflecting weakness in the tractor cycle. Implied core P/E for M&M stands at 13.7 times and 10.7 times FY23E and FY24E EPS, respectively. This implies a discount of nearly 25 percent (on an FY24E basis) to its five-year average core P/E," said the brokerage firm.
Kotak Securities has maintained a buy call on the stock with a target price of ₹1,180 and highlighted the stock's cheap valuation.
Kotak said that with successful launches in the UV segment, it expects a strong recovery in automotive segment volumes once the chip shortage situation improves. The company has been successful in turning around international farm subsidiaries as well as improving return ratios, which Kotak finds impressive.
HDFC Securities also has a buy call on the stock with a revised target price of ₹1,164 from ₹ 1,065 and said it is optimistic about M&M’s aggressive future road map for its core auto and FES segments (target of 15-20 percent revenue growth CAGR over 2025 and 18 prcent RoCE).
"The tractor segment is seeing a demand revival in Apr-May on the back of which management expects the industry to grow in single digits for FY23, which is also in line with our growth forecast of 8 percent. M&M’s new UV models are currently seeing healthy demand (order backlog of 170k+ units). On the back of a solid product pipeline, we expect M&M to regain some of its lost market share in the coming years," HDFC Securities said.
"On the back of better-than-expected performance in Q4 and a strong order backlog, we raise our earnings by 5 percent each for FY22-24E," the brokerage firm added.
Brokerage firm JM Financial also has a buy call on the stock with a revised target price of ₹1,100 from ₹1,060 earlier. JM Financial attributed its buy call to the new capital allocation policy and strong demand tailwind both in auto and farm segments. The brokerage firm added that a sharp rise in input cost and inability to pass on the same, weak response to new launches are some of the key risks.
Emkay Global also has a buy call on the stock with a target price of ₹1150. It has increased its FY23/24 EPS forecast by 8 percent each owing to higher volumes and margin assumptions.
"We build in revenue/earnings CAGRs of 18 percent each over FY22-24E. Auto revenue should see a strong 24 percent CAGR, and Farm revenues are likely to witness a 6 percent CAGR," said Emkay.
Brokerage firm LKP Securities also has a buy call on the stock with a target price of ₹1,253. LKP expects a gradual month on month upward trajectory in both SUVs and tractor sales hereon as the semiconductor issue is getting sorted out.
Within the auto sector, the robust order book of Thar and XUV 7oo should assist SUV growth in coming quarters, while a whole host of new launches in the coming months should bolster growth thereon, LKP said.
"Quick resolving of semiconductor issues shall remain the key driver for growth in the ensuing quarters as it would lead to a ramp up in wholesale sales led by dispatching of the huge order book. We are cautiously optimistic about the FES segment as the food grains export ban may lead to some slowdown (seen a bit in May), while all other drivers remaining in place may offset its impact," LKP said.
"In EVs and LCVs too, with new launches, the company is in a position to expand its market leadership position. M&M has over time exited its loss-making businesses and has turned around several businesses which would definitely gather the confidence of shareholders. The company has identified several pillars of growth, which can leverage the core strength of the M&M group and accelerate the growth of the company over the medium term," said LKP.
Disclaimer: The views and recommendations made above are those of the broking firms and not of MintGenie.