A robust show during the March quarter of 2024-25 (Q4FY25) and hopes of a strong demand momentum have led to an upward revision of Mahindra & Mahindra’s (M&M’s) earnings.
With a slew of launches lined up amid a steady demand environment, brokerages see M&M outperforming peers in passenger vehicles (PVs), tractors and commercial vehicles (CVs).
Moreover, given the earnings upgrades, the stock gained 1.6 per cent on Tuesday despite a weak market. Riding on strong operating performance in the farm equipment segment (FES), the company delivered better-than-expected margins at the consolidated level.
Overall margins came in at 14.9 per cent, 180 basis points (bps) higher over the year-ago quarter and 30 bps over the December quarter.
Despite being a lean season, the company posted record margins in FES, aided by better operating leverage, favourable raw material prices and richer product mix.
On a low base, margins in FES were up 360 bps year-on-year (Y-o-Y) to 19.4 per cent.
Auto segment margins were marginally lower than Street estimates at 9.2 per cent, up 20 bps Y-o-Y and diluted to the extent of 80 bps by the lower margin electric vehicle (EV) segment.
Nomura Research expects EVs to be a key driver of sales with sports utility vehicles (SUVs) growing at 14 per cent over FY25-27 compared to the sector’s 5-6 per cent rise.
While a rise in the EV mix would be a key driver of sales growth, it may come at the cost of lower auto segment margins.
Revenues of the company rose 25 per cent Y-o-Y and this was led by 19 per cent increase in volumes and 3 per cent rise in average selling prices.
Auto volumes saw a growth of 17.5 per cent Y-o-Y and its market share in the SUV segment improved 310 bps Y-o-Y to 23.5 per cent.
M&M outperformed the sector in passenger vehicles by registering a growth of 20 per cent compared to the sector’s 11 per cent.
It expects urban demand to recover in the second half of FY26 and is guiding for a mid-to-high teens volume growth during the financial year.
This is on the back of rate cuts and lower income tax.
Rishi Vora of Kotak Securities expects the SUV segment’s demand to remain steady, driven by successful launches (XUV 3XO, Thar Roxx and new EVs) and an increase in disposable income, which is driving premiumisation.
The brokerage has a ‘buy’ rating on M&M as it continues to execute well by maintaining a leadership position in all the three segments.
Also, there is an improvement in its return ratio and cash flow generation, as well as its preparedness for the EV transition.
Tractor volumes grew 22.9 per cent in the quarter while market share improved 180 bps Y-o-Y to 41.2 per cent.
The tractor segment is expected to grow by high single digits in FY26, led by higher reservoir levels and expectations of normal monsoon.
While domestic volumes are set to remain healthy in FY26, the company continues to face challenges in the international markets due to weak macro trends.
M&M’s recent interventions in tractors have also helped it gain market share in the segment.
Kumar Rakesh of BNP Paribas Securities said that with improved mix, higher scale and lower loss-making international subsidiaries, FES could deliver better profitability.
The brokerage has an ‘outperform’ rating and believes that the company offers one of the strongest volume and earnings growth outlook in the automotive segment.
This is because of its solid execution track record, multiple model launch plans and improving core profitability.
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