Buy This Mahindra Group Large Cap Stock For A Target Price of Rs 1,585: Prabhudas Lilladher

Mahindra & Mahindra, a Mahindra group large-cap auto company with a market capitalization of Rs 1,65,320.94 crore. The stock jumped 3.71% on BSE in Monday's trade to end at Rs 1,329.45 per share. In the last one year it has given a return of 33.22% and over three years it has managed to generate a return of 174.23%. Considering the company's remarkable revenue growth, brokerage firm Prabhudas Lilladher has issued a buy call on the stock with a target price of Rs. 1,585.

March Performance

Mahindra & Mahindra's 4QFY23 posted revenue was above the stock-broking firm's consensus estimate, which was led by higher-than-expected ASPs (at Rs 809k, +5.3% QoQ). The revenue was at Rs 226 billion, it grew by 4.2% QoQ driven by higher realization in the automotive segment.

However, the EBITDA margin at 12.4% came below our estimate of 12.8%, due to a higher mix of the auto segment and the impact of farm machinery in the farm equipment segment. The gross margins improved by 100bps QoQ while other expenses were higher than expected. APAT at Rs. 20.6 billion beating the estimate of Rs 16.4 billion.

Management Guidance

As per the research note, the management pointed out that commodity costs have softened and should support margins, but noted that semiconductor shortage continues to impact volumes at around c3k unit per month.

Further the auto company highlighted that El Nino won't be affecting tractor sales as other positive factors like good reservoir levels, good Rabi crop, improving terms of trade for farmers, increased spending in rural India to help the industry.

Thus, the company has guided for low single-digit growth in tractors led by positive enablers and government spending, furthermore, it aims to grow its farm machinery sales 10x by 2027 (c38% growth in FY23).

Valuation & Rating

According to Parbhudas Lilladher's research, Mahindra & Mahindra should benefit, given that the company's growing customer preference for SUVs, the capacity ramp-up to fulfill strong order book, market share gains in the tractor industry, and strong response to EV portfolio (XUV4OO).

"Also, benign raw material costs, operating leverage, and end of a volume of introductory priced model would benefit margins (we built 140bps expansion over FY23-25E). Our EPS estimates remain largely unchanged. Retain 'BUY' with a target price of Rs 1,585 (18x on Mar-25E core EPS and Rs 331 for subsidiaries)", the stock-broking firm added.

Dividend Details

The Board of Directors of the large-cap company has recommended a dividend of Rs 16.25 (325%) per ordinary equity share of the face value of Rs 5 each. The payment is subject to the approval of shareholders in the ensuing Annual General Meeting (AGM) of the company, which will be held on Friday, 4th August 2023.

Further, the Register of Members and Share Transfer Books of the company will remain closed for payment of dividends and AGM from Saturday, 15th July 2023 to Friday, 4th August 2023, inclusive of both days. The company has set Friday, 14th July, as the record date to note the names appearing as beneficial owners to receive dividends.

Disclaimer

The stock has been picked up from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the author, or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.