On Thursday, Ambit Capital initiated coverage on Mahindra & Mahindra Ltd. (MM:IN) (OTC: MAHMF) with a Buy rating and set a price target of INR 3,284.00. The firm highlighted that over the past four years, Mahindra & Mahindra has seen success with its sport utility vehicles (SUVs) and has improved its capital allocation strategy.
The analyst from Ambit Capital expects Mahindra & Mahindra's growth to be broad-based, supported by its three core businesses. The Farm Equipment segment (FES) is anticipated to benefit from a cyclical recovery in the tractor market and significant growth in the emerging non-tractor sector. The company's SUVs have achieved market leadership through its 'SUV core brand' strategy.
In the light commercial vehicle (LCV) sector, Mahindra & Mahindra is leading the largest segment of 2.0-3.5 tons, which is gaining increased prominence in the market. Additionally, the company is expected to see substantial value creation from its investments totaling INR 174 billion in unlisted businesses.
The firm believes that with the valuation discount largely addressed, future returns on Mahindra & Mahindra shares will be driven by core earnings per share (EPS) growth, projected at approximately 13% compound annual growth rate (CAGR) from fiscal years 2024 to 2027. The success in electric vehicles (EVs) and the ramp-up in farm machinery are identified as key catalysts for potential stock rerating. The price target is based on a sum-of-the-parts (SOTP) valuation, implying a multiple of 28.6 times the forecasted FY26E core standalone EPS.
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