Mahindra & Mahindra Ltd.’s profits are expected to grow by a third with the Buoyant Sport Utility Vehicle sales from January to March, but new electric vehicles could potentially dent margins.
Analyst estimates compiled by Bloomberg, standalone net profits from India’s biggest SUV maker by revenue could have increased 22% to 2,490 crore in the three months ended March 31st.
Operational profitability calculated as revenue before interest, tax, depreciation and amortization is likely to increase by 30% year-on-year at 4,205 crores, with a margin expanding 160 basis points to 14%.
One base point is a percentage point of one hundredth.
M&M Q4 results (standalone, Yoy)
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One year ago earnings at Rs 30,024 crore
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EBITDA increased the previous year by 30% at 4,205 crores
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160 bps year-over-year margin at 14%
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Net profit will increase by 22% at Rs 2,490
Solid performance is behind SUV sales, which increased 18.26% year-on-year to 23,027 units from January to March. This compares with India’s larger SUV space, which increased by 6.7%, and car sales that reduced by 4.5%.
“We believe M&M will report a strong result set on Yoi-based, in the background of increased volumes in SUVs and tractors,” CLSA said in a memo. “In addition, we expect management comments on tractors to be positive along with strong booking momentum for the recently launched BEV (battery electric vehicle).” CLSA expects M&M’s EBITDA margin to increase by 91 bps QOQ. This is 27.7% QOQ due to a decrease in tractor volume.
According to BOFA Securities, it encapsulates what was M&M’s “noisy” quarter.
“With the 4W OEM, it’s a noisy quarter for M&M as BEV dispatch begins. This will be a noisy quarter for M&M. It will consider car margins and imminent restructuring at the farm’s subsidiary, which says it is still ongoing with 24% Yoi.
Goldman Sachs seemed to agree.
The launch of Mahindra’s electric SUVs could cause an initial dilution before picking up again after production-related incentives begin to support profitability.
According to Goldman Sachs, the main risks are the inability to set sufficient capacity for cancellation due to recent successful launches, long waiting periods of overbooking models and periodicity of the tractor business. Investors also want to make Mahindra-SML’s Usuzu trading and strategy more clear if India cuts automobile import duties significantly as part of its trade agreement with the US.
Still, JP Morgan is overweight in stock due to the continued strength of its SUV space and strong order books, as well as increased market share of tractors.
“We believe that better capital allocation and subsidiaries should continue to drive improved ROE and potential increases in cash revenues to shareholders,” Jpmorgan said in a memo.
“We will increase our FY25-27/EBIT forecast by 1-3% to consider volumes that exceed SUV and tractor expectations. We have reduced our 26F price target slightly from Rs 3,480.
