This Automobile Stock Has A “BUY” Call From Motilal Oswal For A Gain of +29%

Motilal Oswal, a brokerage house, has placed a buy call for Mahindra Mahindra Ltd. with a target price of Rs 1150, implying a possible upside of +29% from current market levels. The brokerage recommended the share at a market price of Rs 893 and today it is trading at Rs 922.15. According to the research report of the brokerage Mahindra & Mahindras standalone revenue/adjusted PAT grew 15.5%/31% YoY and 13%/81% QoQ to INR133b/INR16.9b, while EBITDA declined by 17% YoY (+2% QoQ) to INR 16.6b. Revenue/EBITDA/adjusted PAT grew 46%/28%/ 97% in 1HFY22 and volumes grew 3% YoY and 2% QoQ. The net realization grew 12% YoY and 11% QoQ to INR698k/unit (est. INR640.6k), driven by ~13% YoY and 12% QoQ growth in Auto segment realization to ~INR779k/unit and tractor realizations grew by ~8% YoY and 4% QoQ to INR551k/unit. Motilal Oswal has said the gross margin of M&Ms declined by 6pp YoY (-320bp QoQ) to 27.2% (est. 28.5%), impacted by commodity cost and adverse mix (lower Tractor sales) and lower than estimated staff cost (-10% QoQ due to one-off) and other expenses (on account of operating leverage) supported EBITDA margin at 12.5% (est. 12.3%), a decline of 480bp YoY and 140bp QoQ. EBITDA declined by 17% YoY and 2% QoQ to INR16.6b (est. ~INR15b). The brokerage has also said in its research report that PBIT margin for Tractor/Auto segment of MMs fell 6pp/270bp YoY, but rose 160bp/100bp QoQ to 18.7%/2.7%, higher other income (driven by dividend from subsidiaries) boosted adjusted PAT growth by ~31% YoY and 81% QoQ to ~INR16.9b (est. INR11.2b) and investment in subsidiaries/JVs/associates stood ~INR4.6b in 1HFY22 (v/s INR29.4b in 1HFY21).Advertisement According to the research report of Motilal Oswal, the management commented that Mahindra & Mahindra Ltd. is currently consolidating its EV business by merging Mahindra Electric (100% subsidiary) with the standalone entity, bringing the entire EV business under one roof. It plans to have a sizable share in e-3Ws, e-LCVs, and e-PVs.In the Farm Machinery business, Mahindra & Mahindra Ltd is targeting to grow its FY27 revenue by 10x to ~INR50b (including ~INR10b from exports), led by strong growth in the domestic industry (to ~INR120b by FY27 from INR50b currently), and driving market share gains to over 30% from sub-10% currently said Motilal Oswal. The brokerage has further clarified in its research report that We expect the Auto business to take over the growth mantle from Tractor, although deterioration in the mix would restrict EBITDA/EPS CAGR to ~17%/~23% over FY21-23E. MMs valuations are still at a substantial discount to its five-year average, reflecting a weaker Tractor cycle. Implied core P/E for MM stands at 12.3x/9.6x FY22E/FY23E EPS. This implies an over 30% discount (on an FY23E basis) to its five-year average core P/E. We maintain our Buy rating, with a TP of INR1,150/share (Sep23E SoTP). The above stock is picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.