In the current phase of uncertainty for India’s equity markets, it’s crucial to have a clear vision of the future. Analyst meetings, like the one recently held by Mahindra & Mahindra (M&M), play a significant role in providing this clarity. Despite no new targets being introduced, the meeting effectively reiterated known information, offering a solid reason for investors to remain engaged. Bernstein’s recent report outlines the key takeaways and maintains an Outperform rating for M&M.
M&M is balancing its electric vehicle (EV) ambitions with the continued relevance of internal combustion engine (ICE (NYSE:)) vehicles. The company projects that ICE will still account for 70% of its volumes by FY30. In line with this, M&M plans to launch nine new models, including six ICE vehicles. The company also unveiled three battery electric vehicles (BEVs) – XUV.E8, XUV.E9, and BE.05 – set to launch in 2025/26.
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These BEVs promise competitive pricing without sacrificing margins, featuring 60-80 kWh LFP battery packs that offer a leading market range. Targeted at premium customers, these models will boast advanced features such as coast-to-coast wide-screen displays, automatic parking, and ADAS systems.
While the short-term outlook for the farm segment remains uncertain due to volatile monsoon conditions, M&M’s long-term growth strategy is grounded in solid logic. The company highlighted the significant untapped demand for tractors, noting that to meet FY30 food grain targets, India would need 17 million tractors, up from the current 8 million. Additionally, M&M is focusing on farm implements, exports, and EVs over hybrids, along with opportunities in electric three-wheelers (EV 3Ws) and medium and heavy commercial vehicles (MHCVs).
M&M has experienced a significant uptick in valuation over the past month, driven by market enthusiasm, post-election interest in rural plays, and an optimistic monsoon outlook. The company’s SUV volumes have grown by 25% year-over-year for FY25 to date.
With continued growth prospects and new model launches anticipated in the next 12 months, M&M’s valuation rerating appears sustainable. Although M&M and the broader market are not cheap in valuation terms, the company remains a compelling investment relative to the market.
Bernstein has raised its earnings estimates for M&M by 9-10% and increased the target price from INR 2,630 to INR 3,200, reaffirming its Outperform rating based on a sum-of-the-parts (SOTP) valuation, with the core business valued at 18x versus the previous 15x.
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However, investors need to know that the stock has already risen 113.3% in the last 12 months, making it a prudent strategy to wait for the prices to cool down.
Also, InvestingPro has a completely opposite opinion on the counter. After taking 14 financial models into consideration, the fair value comes at INR 2,040 which is a good 31.1% lower than the CMP of INR 2,961. It is clear, after doubling in the past 12 months, the valuations are now stretched. While Bernstein is bullish on Mahindra & Mahindra, its valuations as per P/B, EV/Revenue, P/E, etc, (all of which are included in the fair value calculation) seem expensive.
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