Financial Highlights:

Q4FY24 Result Highlights
Mahindra & Mahindra Ltd (M&M) has delivered strong performance in Q4FY24, surpassing estimates with notable growth in revenue and profitability. The company’s standalone revenue grew by 12% YoY to Rs. 25,436 crores as compared to Rs.22614 crores in Q4FY23 driven by growth in the automotive division. EBITDA surged 22% YoY to Rs. 3446 crores and the margins were up by 103 bps YoY underpinned by stable commodity costs. PAT registered a growth of 32% YoY to Rs.2,038 cr aided by healthy topline growth and robust operational performance.

Strong Automotive Performance

• The Automotive division experienced a notable 13.8% YoY increase in volume, primarily driven by strong sales in the Utility Vehicle (UV) and Commercial Vehicle (CV) segments. This growth led to a 20% YoY rise in revenue, totaling Rs 19,910 crores. The average realization improved by 5.5% YoY and 5.3% QoQ to Rs 925,000. EBIT surged by 48.9% YoY to Rs 1,751 crores, with the margin expanding by approximately 170 bps to 8.8%. The robust demand in the UV segment allowed the company to maintain its leadership, with its revenue market share increasing by 80 bps YoY to 20.4%.
• SUV volumes rose from 357,000 units in FY23 to 459,900 units in FY24, earning the company the second position in market share by volume. The company achieved the top rank in the Light Commercial Vehicle (LCV) segment <3.5T tons, with a market share of 49.0% in FY24, reflecting a YoY gain of 3.5%. LCV volumes increased from 238,500 units in FY23 to 249,700 units in FY24.
• The Last Mile Mobility segment reached a significant milestone by surpassing 100,000 sales for the first time in FY24. The Electric Three-Wheeler (E-3W) segment saw an impressive 4x growth over two years, capturing a 58.7% market share in FY24.
• In FY24, the company's EV 3W portfolio expanded by 51% compared to FY23. The electrification rate for the L52 reached 11.3% in FY24. The company focused on product enhancements to improve the total cost of ownership (TCO) and overall customer value proposition. They introduced the Treo Metal body and continued to expand their dealer network, adding 40 exclusive LMM dealers/outlets.

Farm Equipment

• The Farm Equipment Segment (FES) market share increased from 41.2% in FY23 to 41.6% in FY24. They have successfully launched OJA, Target, and Naya Swaraj, particularly in the 20-30 HP segment, gaining market share of 12.8% in this segment.
• The Farm Machinery segment showed significant growth, with Q4 FY24 revenue reaching Rs 225 crores, marking a 44% YoY increase.
• The segment also saw growth in exports, especially with product launches in the North American market for Rotary Tillers, Loaders, and Backhoes. In the Rotavators category, the company achieved a market share of 20.3% in FY24, up from 16.5% in FY23. Additionally, their Rice Transplanter became the market leader with a 62% YoY volume growth.

Pricing action and improved mix boosted tractor realization

• Despite a 20% YoY decline in tractor sales, revenue only fell by 13.1% YoY to Rs 5227 crores. This smaller decrease was due to strategic pricing actions, an improved product mix, and favorable input costs, leading to a significant realization growth of 8.9% YoY and 10.1% QoQ to Rs 736,000 per unit.
• Consequently, the core tractor margin improved sequentially from 16.9% in Q3FY24 to 17.6%. However, the market share decreased by 130 bps YoY to 39.4%.

Conference Call Highlights

Automotive Division
New Launches

• M&M plans to launch 9 ICE SUVs, including 3 mid-cycle enhancements, and 6 newly developed products. Additionally, the company aims to introduce 7 Born Electric Vehicles (BEVs) and 7 Light Commercial Vehicles (LCVs) by FY30. Seven LCV launches would include five ICE and two EV variants in less than 3.5T segments.

Order Book and Bookings

• The open order book stands at approximately 220,000 units, including 50,000 bookings for the new XUV 3XO.
• Current open bookings include ~50k for XUV 3XO, 86k for Scorpio, 59k for Thar, 16k for XUV700, and 10k for Bolero (including Neo).
• Cancellations are at 10%, and average monthly bookings remain around 48,000.

XUV 3XO

• The initial response has been encouraging due to attractive pricing, with first-time buyers and hatchback owners dominating initial bookings.
• About 70% of bookings are for the gasoline variant, 30% for diesel, and 20% for the automatic version.
• Current production capacity stands at 9,000 units/month, which could be ramped up to 10,000 units/month.

Capacity Expansion

• For FY25, the company plans to ramp up its capacity to 64,000 units/month, of which 5,000 units/month are dedicated to models like the THAR 5D and XUV 3XO/4OO, and an EV capacity of 10,000 units/month.
• By FY26, M&M aims to increase its total capacity to 72,000 units/month, including an additional 8,000 units/month for EVs.

LCV-FY24 market share stood at 49% (+350bp YoY). It has gained market share despite a weak industry environment.

Capex Guidance

• The Automotive Division's capex from FY25-FY27 is projected at Rs 27,000 crores, with Rs 26,000 crores allocated for capacity addition and new product development.
• Capex for the Auto ICE segment over FY25-27 is estimated at Rs 14,000 crores, including Rs 8,500 crores for ICE SUVs.
• Capex guidance from FY25-FY27 is Rs.5000 out of which Rs 2800 cr will be utilized towards the development of new products, Rs 700 cr towards capacity and the remaining towards regulatory and sustenance.

Growth Expectations

• Management remains optimistic about achieving mid-to-high teens growth in the SUV segment, driven by new launches and positive responses to recent models.
• The company aims to be a leading player in the compact SUV segment by introducing new models to address gaps in the market.

Farm Segment

• The response to the new OJA tractor has been positive in both the domestic and US markets.
• Market share in Q4FY24 declined by 130 bps YoY to 39.4% due to a drop in overall tractor sales.
• In the second half of FY24, the company gained 12.8% market share in the 20-30HP segment, thanks to the successful launch of OJA and Target.
• Rotavators market share increased from 16.3% in FY23 to 20.3% in FY24.
• Management expects tractor volume to grow by 5% in FY25, as the Indian Meteorological Department (IMD) predicts an above-normal monsoon. The first half of FY25 is expected to be weak due to ongoing elections, but the second half should see a significant uptick. April 2024 volumes have exceeded expectations, and anticipated farm output recovery and strong exports should drive growth.

Region-wise

• Southern markets declined by 25-35% in FY24 but are expected to rebound on a very low base if rainfall is good.
• Initial forecasts for rainfall in the eastern market are not encouraging.
• Maharashtra is also expected to grow on a low base from FY24.

M&M enjoys market leadership in 3W EVs with 59% market share in FY24. EV penetration in L5 category now stands at 11.3% in FY24 and the management expects this segment to see rapid electrification in the coming quarters.

Margins have remained stable despite weak volumes due to cost optimization and favorable raw material costs. The TREM-5 norms deadline is expected to be further delayed beyond FY26.

Outlook & valuation

Mahindra & Mahindra Ltd (M&M) delivered earnings above estimates for the quarter ended Q4FY24 driven by growth in the automotive division and Farm equipment segment. The company's focus on launching new ICE SUVs, BEVs, and LCVs by FY30, coupled with capacity expansion plans, indicates a strong growth trajectory. We believe that robust demand in its automotive division especially for its utility vehicles will drive volumes for the company. Tractor industry is anticipated to register steady growth in FY25 due to expectations of normal monsoon and timing of festive period.

The company has been consistently improving its market share across divisions, indicating healthy response for products and strong execution of its strategy. Further, traction in its EV business in the passenger vehicle and LCV segment shall provide the next leg of growth for the company. With a favorable demand scenario in the Auto Division, a healthy order book in the PV segment, Production ramp-up, market leadership in the tractor segment, the opportunity to grow in the farm machinery segment, and its road map to play the EV space, M&M is well poised to deliver steady earnings growth in the coming quarters. The management noted that commodity prices should remain benign in the coming period while better operating leverage and cost cutting initiatives shall keep the margin profile steady. At a CMP of Rs. 2558, the stock is trading at 23x FY26E. We recommend a HOLD rating on the stock.