Mahindra & Mahindra Stock: A Stellar Performer with 78% Returns - Is It Still a Buy?

Stock to buy: Mahindra & Mahindra gave 78% returns last year; should you invest now?

Mahindra & Mahindra: The company offers a wide range of products, including SUVs, pickups, commercial vehicles, electric vehicles, tractors and farm machinery. Its advanced automotive manufacturing capabilities leverage digital technologies like artificial intelligence and machine learning to optimise processes. Should you buy Mahindra & Mahindra now?

Stock to buy: Mahindra & Mahindra gave 78% returns last year; should you invest now?

Mahindra & Mahindra: The automobile manufacturer missed estimates in the June 2024 quarter due to lower ASPs (average sales prices) despite steady volume growth in automobiles and FES (farm equipment sector) segments. While standalone revenue grew by 12%, standalone PAT (profit after tax) fell by 5.3% on a year-on-year basis. Both top line and bottom line fell short of Reuters-Refinitiv estimates by 5.8% and 8.3%, respectively. However, the operational performance was strong, led by benign raw material costs, better mix and operating leverage benefits. The standalone EBITDA grew by 22% y-o-y, surpassing analysts' estimates by 5.1%. The company offers a wide range of products, including SUVs, pickups, commercial vehicles, electric vehicles, tractors and farm machinery. Its advanced automotive manufacturing capabilities leverage digital technologies like artificial intelligence and machine learning to optimise processes. The company is expected to benefit from the buoyant prospects of automobiles and FES segments. Factors like robust economic growth outlook, government's focus on infrastructure development, increasing income levels, rapid urbanisation, and young and aspiring population are driving the automobile sector. The management is targeting a volume growth of 15-19% for utility vehicles, for 2024-25, led by momentum in new launches (XUV 3XO and new Thar). The company is capitalising on its leadership in SUVs, with 23 new product launches across ICE (internal combustion engine), BEV (born electric vehicle) and LCVs (light commercial vehicle) by 2030. EVs are likely to contribute 20-30% to the product mix in five years. In the FES segment, growing demand for farm mechanisation, emergence of newer technologies and government focus on improving agriculture are the long-term growth drivers. Furthermore, favourable price realisation in mandis for farmers, positive monsoon outlook and the start of the festive season in the second half of 2024-25 are expected to drive the sale of tractors in the near term. The management has reiterated its guidance of 5% in the tractors segment for 2024-25. The company is also aiming to expand international operations by introducing its OJA tractors (lightweight tractors for horticulture and paddy cultivation) in Europe and Asean markets. In addition, the company is focusing on scaling up the farm machinery business through investments in technology and strategic partnerships. A recent Motilal Oswal report states that the company remains committed to delivering 15-20% EPS growth and 18% ROE, ensuring sustained profitability and shareholder value in the long term. The stock has significantly outperformed both the market and sector benchmarks in the past year, with 78% returns. Comparatively, BSE Sensex and BSE Auto Index delivered 25.8% and 66.6%, respectively. Selection methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' during the past three months. The consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (1 for strong buy, 2 for buy, 3 for hold, 4 for sell, 5 for strong sell). An improvement in consensus analyst rating indicates that the analysts are getting bullish on the stock. Only stocks with more than five analysts covering them are considered. You can see similar consensus analyst rating changes during the past week in ETW 50 table.