M&M stocks post sharpest yearly rally in 15 years; zoom 73% in CY 2024

Shares of Mahindra & Mahindra (M&M) are set to post their sharpest yearly rally in the past 15 years.

 

The stock price of the automobile company has zoomed 73 per cent in 2024 on expectations of robust growth prospects.

 

The stock had hit a record high of Rs 3,221.10 on September 27, 2024. M&M is the top gainer among the Sensex stocks in CY24.

 

In comparison, the BSE Sensex has gained 8.3 per cent, and the BSE Auto index rallied 22.2 per cent during the same period.

 

On Tuesday,  the stock gained 0.21 per cent on the BSE to end at Rs 3009.05.

 

 

Earlier in 2009, the market price of M&M had skyrocketed 293 per cent against the 76 per cent surge in the benchmark index.

 

The M&M share has outperformed the market for the fifth straight calendar year.

 

Since 2020, the stock price of the company has increased nearly sevenfold from Rs 531.35 at the end of December 2019.

 

In 2020, M&M had rallied 35.6 per cent followed by 16.2 per cent in 2021, 49.2 per cent in 2022 and 38.2 per cent in 2023. 

 

 

The original equipment manufacturer (OEM) major operates through various business segments, including automotive (production and sales of UVs/CVs and 3Ws, spare parts and related services). It also has farm equipment (tractors, spare parts and related services) as well as financial services (services related to financing, leasing and hire-purchase of automobiles and tractors).

 

It also engages in steel trading and processing, infrastructure, hospitality, IT services and telecom sectors.

 

Analysts expect M&M to benefit from its leadership position in the tractor segment, strengthening itself in the light commercial vehicle (LCV) segment. They also expect it to regain market share in the highly competitive SUV segment.

 

The company is also on track for growth in the electric vehicle (EV) segment.

 

It eyes 10x growth in its farm equipment business by FY27E, while strengthening its SUV segment via launches.

 

Meanwhile, the carmaker has informed stock exchanges that Mahindra Electric Automobile Limited (MEAL) has updated its investment agreement with British International Investment Plc (BII). The new agreement states that MEAL will receive Rs 650 crore in the final tranche of the investment, down from the previously planned Rs 725 crore. 

 

The company, in an exchange filing, said that revision in the investment agreement came after a joint assessment of the funding requirements of MEAL, and it is set to be completed by March 31, 2025.

 

Consequently, BII's total investment in MEAL will reach Rs 1,850 crore, resulting in a shareholding of around 2.64-4.58 per cent on a fully-diluted basis. This is a small development for the company amid its ambition to spend around Rs 12,000 crore on e-mobility over the next few years.

 

The company is generating a healthy cash flow to self-fund this capex plan. It will be on capacity expansion as well as new product development, ICICI Securities said in a note.

 

The brokerage firm prefers M&M amid its consistent positive surprise on product launches, ability to grow ahead of the market and persistent focus on capital efficiency (RoE>=18 per cent). It values M&M at a target price of Rs 3,600 on a sum-of-the-parts (SOTP)-basis.

 

Above normal monsoon, healthy water reservoir levels and an increase in government spending in rural areas are expected to benefit the domestic tractor industry. It is anticipated to achieve its long-term volume compound annual growth rate (CAGR) of 5-7 per cent starting FY25E.

 

Low penetration of farm mechanisation in India — at approximately 47 per cent compared to its peers — presents a significant growth opportunity for M&M.

 

Analysts at Nuvama Wealth Management estimate revenue CAGR of 15 per cent over FY24–27E, led by a robust growth of 16 per cent in autos and 11 per cent in the farm segment.

 

The brokerage firm forecasts a recovery for the company with revenue CAGR of 11 per cent in the farm segment over FY24–27E. This is on expectations of a normal monsoon (owing to La Nina), benign government policies for farmers, market share gains and robust exports.

 

Analysts further highlighted stock catalysts for the company's scrip, including production ramp-up and incremental announcements pertaining to electric vehicles (EVs).

 

A better outlook for the rural segment and the coming of Chaitra Navratri in end-March, 2025 would support tractor sales in Q4FY25.

 

Even though the domestic passenger vehicle (PV) industry saw a moderation in growth, brokerage firm Mirae Asset Sharekhan has been arguing that M&M would outperform the PV industry, led by launches and new capacities.

 

Manufacturing capacity in the PV business has reached 54,000 units per month.

 

Year-to-date till November 2024, M&M’s PV division reported a 20.9 per cent growth compared to Maruti Suzuki India’s 2.6 per cent growth and Tata Motors’ 2.6 per cent decline.

 

M&M has enhanced its guidance for the tractor industry as it now assumes that it can grow by 6-8 per cent in FY25 (versus up to 5 per cent earlier) and optimism continues for FY26, backed by rising reservoir levels.