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Mahindra & Mahindra (M&M), a prominent Indian automotive manufacturer, has recently garnered renewed interest from investors, particularly following a period of share price decline. The stock, currently trading around Rs 2,710.80, has shown signs of recovery, prompting the brokerage firm Jefferies to issue a ‘Buy’ rating with a target price of Rs 4,075. This recommendation is underpinned by several key factors, which Jefferies believes present a compelling buying opportunity for M&M investors. The core argument revolves around the perceived limited impact of Tesla's potential entry into the Indian market on M&M's near-term prospects, the supportive governmental policies for EV manufacturing, the robust demand for M&M's electric vehicles, and the strengthening financial position of the company through its subsidiaries. Each of these elements contributes to a narrative of M&M's resilience and growth potential, justifying Jefferies' positive outlook. The recent dip in M&M's share price, attributed to concerns about Tesla's entry and M&M's EV order book, is viewed by Jefferies as an overreaction. The firm highlights that M&M's shares have fallen 14% in the past 10 days, contrasting with the Nifty 50 index's mere 1% drop. This discrepancy, according to Jefferies, creates an opportune entry point for investors. The rationale for downplaying Tesla's immediate impact stems from the significant price difference between the two companies' offerings and the complexities surrounding the government's EV policy. Jefferies emphasizes that M&M's 20x core FY26E PE is attractive, considering the projected 18% FY25-27E EPS CAGR. This valuation suggests that M&M is undervalued relative to its expected earnings growth, making it an appealing investment proposition. The Indian government's announcement of a new EV policy in March 2024, aimed at attracting foreign investments, is another factor considered by Jefferies. This policy allows OEMs committing to invest at least Rs 42 billion (approximately $0.5 billion) in manufacturing to import up to 8,000 vehicles per year at a reduced import duty of 15%. However, Jefferies believes that the high price limits and import volume restrictions under this policy will minimize the impact on M&M. This assertion implies that while the policy may benefit other players, M&M's existing market position and strategies are well-insulated from any significant disruption. The anticipation surrounding Tesla's entry into India has undoubtedly created a sense of uncertainty in the market. However, Jefferies argues that Tesla's potential entry does not pose a major threat to M&M. This view is based on several considerations, including the substantial price gap between the existing portfolios of the two companies, the lack of clarity on Tesla's plans for local manufacturing, and the relatively small proportion of EVs in M&M's overall volume estimates for FY26-27E. These factors suggest that M&M is well-positioned to maintain its market share and capitalize on the growing demand for EVs, regardless of Tesla's presence. The strong market response to M&M's new electric SUVs, the XUV-e9 and BE-6, further reinforces Jefferies' positive outlook. The company recorded an impressive 30,000 bookings on the first day of launch, indicating a strong demand for its upcoming models. Jefferies estimates that this represents 30% of India's total EV sales in 2024, highlighting the brand's growing popularity and market penetration. The brokerage firm forecasts that M&M will sell 48,000 EVs in FY26 and 80,000 EVs in FY27, demonstrating its confidence in the company's ability to capture a significant share of the expanding EV market. In addition to its core automotive business, M&M is also strengthening its financial position through its subsidiaries. Mahindra Finance and Mahindra Lifespace have announced rights issues worth Rs 3,000 crore and Rs 1,500 crore, respectively. These capital infusions will provide the subsidiaries with additional resources to pursue their growth strategies and contribute to the overall financial health of the M&M group. In conclusion, Jefferies' ‘Buy’ rating on M&M is based on a comprehensive assessment of the company's current market position, growth potential, and financial strength. The firm believes that the recent dip in M&M's share price presents a buying opportunity for investors, and that the company is well-positioned to capitalize on the growing demand for EVs in India. The key factors underpinning this positive outlook include the limited impact of Tesla's entry, the supportive government policies, the strong market response to M&M's electric SUVs, and the strengthening financial position of its subsidiaries. These elements collectively paint a picture of M&M as a resilient and promising investment prospect.
To further elaborate on the reasons behind Jefferies' positive outlook on Mahindra & Mahindra, it is crucial to delve deeper into each of the factors they have highlighted. Firstly, the limited impact of Tesla's entry into the Indian market is predicated on the significant price differential between Tesla's offerings and those of M&M. Tesla, known for its premium electric vehicles, primarily targets a segment of the market that is distinct from M&M's current customer base. While there may be some overlap in the future, the current price points effectively insulate M&M from direct competition. Furthermore, the uncertainties surrounding Tesla's plans for local manufacturing further mitigate the potential threat. Establishing a local manufacturing facility requires significant investment and time, allowing M&M to consolidate its position in the market before Tesla can effectively compete. Moreover, even if Tesla were to commence local manufacturing, it would likely take several years for the company to ramp up production and achieve significant market share. Secondly, the Indian government's EV policy, while intended to promote foreign investment in EV manufacturing, contains certain limitations that minimize its impact on M&M. The policy allows OEMs to import a limited number of vehicles at a reduced import duty, provided they commit to investing a substantial amount in local manufacturing. However, the high price limits and import volume restrictions effectively prevent Tesla from flooding the market with imported vehicles. This provides M&M with a level playing field and allows it to compete on its own merits. Additionally, M&M has already established a strong presence in the Indian EV market, giving it a significant advantage over potential new entrants. The company has invested heavily in research and development, and has a well-established manufacturing and distribution network. This allows M&M to offer a wide range of EVs at competitive prices, making it an attractive option for Indian consumers. Thirdly, the strong market response to M&M's new electric SUVs, the XUV-e9 and BE-6, is a testament to the company's ability to innovate and meet the evolving needs of Indian consumers. The impressive booking numbers on the first day of launch demonstrate the pent-up demand for M&M's EVs. This demand is driven by a number of factors, including the growing awareness of the environmental benefits of EVs, the increasing availability of charging infrastructure, and the government's incentives for EV adoption. M&M has been at the forefront of the EV revolution in India, and has established a reputation for producing high-quality, reliable, and affordable EVs. This has allowed the company to build a loyal customer base and capture a significant share of the market. Fourthly, the strengthening financial position of M&M's subsidiaries further reinforces the company's overall stability and growth potential. Mahindra Finance and Mahindra Lifespace are both leaders in their respective industries, and their recent rights issues will provide them with additional capital to pursue their growth strategies. Mahindra Finance is a leading provider of financial services to rural and semi-urban India, while Mahindra Lifespace is a leading real estate developer. The success of these subsidiaries contributes to the overall financial health of the M&M group, and provides the company with a diversified revenue stream. In addition to these factors, M&M also benefits from a strong brand reputation, a well-established distribution network, and a skilled workforce. The company has a long and successful history in India, and is well-positioned to continue its growth trajectory in the coming years. The company’s commitment to sustainability and innovation, coupled with its strong financial performance, make it an attractive investment for long-term investors.
Furthermore, analyzing the competitive landscape and macroeconomic factors provides additional context to Jefferies' assessment of Mahindra & Mahindra. While Tesla's entry into India captures significant attention, it's crucial to remember the diverse array of domestic and international players already vying for market share in the Indian automotive sector, both in the internal combustion engine (ICE) and EV segments. Companies like Tata Motors, Hyundai, and MG Motors are actively competing with M&M, each possessing unique strengths and strategies. Tata Motors, for example, has made significant strides in the EV market with offerings like the Nexon EV, posing a direct challenge to M&M's dominance. Hyundai and MG Motors bring global expertise and technological advancements to the table, contributing to a dynamic and competitive environment. In this context, M&M's ability to differentiate itself through its product portfolio, pricing strategy, and brand positioning becomes even more critical. The success of its XUV-e9 and BE-6 models hinges on their ability to offer a compelling value proposition compared to competing EVs. Beyond individual competitors, broader macroeconomic trends also influence the outlook for M&M. India's economic growth, rising disposable incomes, and increasing urbanization are all contributing to the growing demand for automobiles. Government policies aimed at promoting EV adoption, such as subsidies, tax incentives, and the development of charging infrastructure, are further accelerating the growth of the EV market. However, challenges remain, including the high cost of EVs, the limited availability of charging infrastructure, and consumer concerns about range anxiety. M&M needs to address these challenges effectively to capitalize on the opportunities presented by the growing EV market. The availability of raw materials, particularly battery components, is another critical factor. The global supply chain for battery materials is complex and vulnerable to disruptions, which could impact the production and cost of EVs. M&M needs to secure reliable sources of raw materials to ensure the smooth and cost-effective production of its EVs. Moreover, technological advancements in battery technology are constantly evolving, leading to improvements in range, charging time, and cost. M&M needs to stay abreast of these advancements and invest in research and development to remain competitive. Another aspect to consider is the regulatory environment. Government regulations related to vehicle emissions, safety standards, and EV charging infrastructure can significantly impact the automotive industry. M&M needs to comply with these regulations and adapt its products and strategies accordingly. The company also needs to engage with policymakers to advocate for policies that support the growth of the EV market. Finally, consumer preferences and buying behavior play a crucial role in the success of any automotive company. M&M needs to understand the evolving needs and preferences of Indian consumers and tailor its products and services accordingly. This includes factors such as vehicle design, features, performance, and after-sales service. In conclusion, Jefferies' positive outlook on M&M is based on a comprehensive analysis of the company's internal strengths, the competitive landscape, and the macroeconomic environment. While challenges remain, M&M is well-positioned to capitalize on the opportunities presented by the growing EV market in India. The company's strong brand reputation, innovative product portfolio, and commitment to sustainability make it an attractive investment for long-term investors.
Source: Five reasons Jefferies say it’s right time to buy Mahindra and Mahindra (M&M)