M&M extends rally to hit a new high; stock up 63% from 52-week low levels

While the food prices continue to remain high, the company believes that a better compensation for farmers would create a positive sentiment and lift demand for tractors and agri-implements

Shares of Mahindra & Mahindra hit a new high of Rs 1,092.75, up 2 per cent on the BSE in Monday’s trade and outperformed the market on strong business outlook.

In the past one week, the stock rallied 12 per cent as compared to 3 per cent rise in the S&P BSE Sensex. With this, M&M has zoomed 63 per cent over three and a half months. Earlier, the stock had hit a 52-week low of Rs 671 on March 8, 2022.

M&M is a conglomerate with presence in auto, IT, financial services, logistics, hospitality and real estate among others. At a standalone level, it is India’s largest tractor manufacturer with around 40 per cent market share in FY22 and second largest commercial vehicle (CV) maker.

The management remained optimistic that the timely arrival of south-west monsoon would augur kharif crop production. "While food prices continue to remain high, a better remuneration for farmers would create a positive sentiment and higher demand for tractors and agri implements," the management added.

Analysts believe that the improvement in rural sentiments in the last three months were supported by better crop realization and absence of offseasonal rains. However, the ban on wheat exports slightly dented sentiments, but, the overall demand still remains healthy.

"M&M has significant exposure to the rural economy through its tractor division and is a good proxy on increase in rural incomes (on the back of remunerative crop prices, healthy water table levels and expectations of a normal monsoon in 2022). Moreover, the company’s recent launches in the PV segment namely Thar and XUV 700 have gained a very positive customer response with current order book at over 1.7 lakh units, equivalent to around six months of monthly sales run rate," analysts at ICICI Securities said.

Brokerage firm ICICI Securities has retained positive view on M&M amid healthy demand prospects across their product profile and focus towards capital efficiency and EV proactiveness.

“We build 14.4 per cent, 19.2 per cent total volume, sales CAGR, respectively, in FY22-24E on the back of new product launches, EV product development and healthy order book. With operating leverage benefits at play, mix normalisation (high growth in relatively low margin automotive business) and focus on optimising cost; we expect 12.6 per cent EBITDA margins and around 13 per cent standalone RoCE by FY24E,” analysts added.

That apart, M&M has outperformed market in a year. The stock gained 14 per cent in a month, as compared to 2.9 per cent fall in the S&P BSE Sensex. Moreover, it has rallied 42 per cent in three months as against 7 per cent decline in the benchmark index. Further, he market price of M&M has surged 36 per cent in a year, as compared to a less than 1 per cent gain in the S&P BSE Sensex.