Mahindra & Mahindra (M&M) is gearing up to capitalize on its strong position in the automotive and farm sectors. The company aims to unlock potential in subsidiaries like Mahindra Lifespaces, Mahindra Holidays, and Mahindra Last Mile Mobility, which it considers key drivers of growth.
M&M’s outlook in the automotive sector is optimistic, particularly in the fast-growing sports utility vehicle (SUV) segment, where it holds a leading revenue market share of 20.4%. The company plans to launch nine new SUVs by 2029-30, including three model refreshes, alongside seven battery electric vehicles (BEVs). Its first ‘born-electric’ vehicle is slated for early 2025, with a target of achieving 30% EV penetration by FY27.
Elara Securities (India) reports that M&M has gained market share in the personal vehicle segment, reaching 10.9% in FY24. With upcoming refreshes and BEV launches, M&M anticipates further growth exceeding industry norms.
SUVs Drive Momentum
At its recent investor day, M&M highlighted a strong order book despite production ramp-ups. The launch of the XUV 3XO sub-compact SUV drew over 50,000 bookings in just 60 minutes, underscoring robust demand. However, lengthy waiting periods for certain variants have led to customer dissatisfaction.
To address this, M&M is increasing production and has earmarked ₹27,000 crore for capital expenditure and investments over FY25-27. The company plans to ramp up SUV production capacity to 72,000 units per month by the end of FY26.
Challenges in a Competitive Market
Despite its optimistic stance, M&M faces intensifying competition in the SUV market from companies like Maruti Suzuki, Tata Motors, and Hyundai India, which is preparing for an IPO and launching new models.
Trucks and Tractors
In the light commercial vehicles segment, M&M holds a market share of approximately 49% and plans seven new launches by FY30. It aims to double its market share in trucks and buses to 7-8% over the next five years.
In the tractor segment, M&M anticipates volume growth of 5-6%, driven by favorable monsoon forecasts and successful new launches. The Indian tractor market is expected to expand significantly by 2030, providing ample growth opportunities. M&M currently commands a 41% market share in the domestic tractor market.
Market Performance and Outlook
M&M’s stock recently hit a new 52-week high, reflecting a 74% increase year-to-date, outpacing the Nifty Auto index’s growth of 36%. The company’s performance improvements in key segments and prudent capital allocation strategies have boosted investor sentiment.
However, the sharp rise in M&M’s share price has pushed its price-to-earnings ratio to around 30 times, significantly higher than its 10-year average of 20 times, which could limit short-term gains.
Motilal Oswal Financial Services identifies strong demand momentum in utility vehicles, long-term tractor growth prospects, and progress in ‘growth gems’ as factors potentially driving M&M’s re-rating.
If M&M executes its plans successfully, it could see enhanced earnings growth. Several brokerages have already revised upwards their earnings-per-share estimates for FY25 and FY26 based on these factors.
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