Prabhudas Lilladher has recommended a BUY on Mahendra & Mahendra with a Target Price of Rs. 826, and an upside of 13% from CMP of Rs. 729 per share.
With approx 60% to revenues, and approx 75% to S/A PAT contributed by rural, M&M is best placed to ride resilient rural demand. The company is on track for having a complete gasoline powertrain; it intends to offer petrol versions of all models by 2020. It would be launching four new petrol engines – 0.6-litre, 1.5-litre, 2-litre TGDI, and 2-litre GDI.
“We reiterate BUY on M&M (MM) led by 1) positive rural sentiments and stable tractor outlook providing margins and cash-flow cushion to compete in UV business, 2) renewed focus to gain back lost market share in UV business with new product launches, 3) dominating presence in LCVs to help ride CV upcycle and 4) increased focus on capital allocation with exit of non-core business like GenZ, USPS (MANA) and Gipps Aerospace (aircraft manufacturing) in 1HY21. However, key factors such as 1) increased competition in UVs led by new entrant and 2) feedback on newly launched passenger UVs are to be watched out”, says Analyst at Prabhudas Lilladher.
Farm segment (FES) outlook stable led by positive rural sentiments, expect domestic tractor sales to grow ~6% CAGR over FY20-22. Capital allocation exercise gathered pace in 1HFY21 as MM continued its focus on exiting non-core/loss-making business.
