On Friday, CLSA updated its outlook on Mahindra & Mahindra (NS:MAHM) Ltd. (MM:IN) (OTC: MAHMF), increasing the price target to INR 3,440 from INR 3,400. The firm sustained an Outperform rating on the stock of the Indian multinational car manufacturing corporation. The adjustment follows Mahindra & Mahindra's second-quarter financial performance, which surpassed CLSA's earnings expectations.
According to the analyst's remarks, Mahindra & Mahindra's earnings before interest, taxes, depreciation, and amortization (Ebitda) for the second quarter of the fiscal year 2025 were 6.1% higher than anticipated. This was attributed to the company's effective execution of average selling price (ASP) strategies, despite the increase in discounting for utility vehicles (UVs). The firm noted that the price reductions in UVs this quarter aligned with input cost benefits being passed on, rather than impacting gross margins to stimulate sales volume.
Despite a quarter-over-quarter decrease in the revenue mix of 650 basis points from the farm equipment segment, the gross margin only saw a minor decline of 45 basis points. The analyst believes that new product launches, including the XUV 3X0, Thar Roxx, and new electric vehicles, are expected to bolster Mahindra & Mahindra's market share in the UV segment and enhance the ASP, even though maintaining profit margins might become challenging with the increased scale of EV production.
CLSA has incorporated 14% and 12% compound annual growth rates (Cagrs) for Mahindra & Mahindra's SUV and tractor segments, respectively, into its projections for the fiscal years 2025-2027. The volume estimates remain unchanged, but the firm has adjusted the auto ASP by approximately 2% in its calculations. Consequently, this has led to a 1.8% rise in the projected earnings for fiscal year 2026.
In conclusion, CLSA maintains a positive stance on Mahindra & Mahindra, underlined by the firm's decision to raise the target price to INR 3,440, reflecting confidence in the company's future performance.
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