Shares of Mahindra and Mahindra (M&M) climbed 4% to ₹2,959 on 19 November, becoming the top gainer on the Nifty index. This surge followed a positive note from CLSA, which maintained its "outperform" rating on the stock and reaffirmed its target price of ₹3,440, indicating a potential upside of 16%. For those looking to invest in stocks, this update could signal an opportunity, given the company's growth trajectory and strategic positioning.
Strong growth outlook drives confidence
CLSA's confidence in M&M stems from insights gained during its discussions with the automaker's management. These insights highlight a robust growth trajectory driven by a strong pipeline of upcoming model launches. Analysts expect these launches to significantly bolster M&M’s growth in the financial years FY25 and FY26.
Over the last five years, M&M has undergone a strategic shift, increasing its SUV mix in the domestic passenger vehicle (PV) portfolio from 35% to 55%. This repositioning, along with a focus on mid and premium SUV segments, has set the company apart. By moving away from entry-level models, M&M is aligning itself with changing consumer preferences for feature-rich vehicles.
Shifting consumer trends and tax advantages
Consumer trends are another factor in M&M's favour. Buyers are now willing to pay up to 10% more for vehicles with premium features, prioritising quality over traditional concerns like mileage. Additionally, M&M stands to benefit from lower GST rates on internal combustion engine (ICE) vehicles, further enhancing its competitiveness.
The company is also well-positioned in the electric SUV (EV) segment, which is poised for significant growth in the domestic market. However, analysts did caution about a potential slowdown in urban discretionary spending, which has shown signs of cooling after three years of strong fiscal growth up to FY24.
Tractor segment and valuation support
In addition to its automotive segment, M&M’s tractor business remains a key growth driver. Analysts have highlighted the tractor industry as being on the verge of a new growth cycle, projecting a 13% compound annual growth rate (CAGR) in volumes and a 19% CAGR in earnings per share (EPS) over FY24–27E. This outlook reinforces M&M’s diversified business portfolio, making it an attractive option for those considering where to invest in stocks.
Trading at 22 times FY26E core business price-to-earnings (PE) ratio, M&M is viewed as attractively valued. The company’s improving automotive franchise and its leadership in the tractor market further support its long-term growth potential.
Conclusion
M&M’s strong performance, strategic focus on SUVs, and robust tractor business have positioned it as a standout player in India’s automotive and agricultural sectors. With a promising growth outlook and a diversified portfolio, the stock’s 4% rise reflects growing market confidence. For investors eyeing opportunities in India's stock market, M&M offers a compelling case for consideration.
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