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  • Stock recommendation: Mahindra and Mahindra — Buy — Target price Rs 1,085

    Publish date: August 8, 2018

    Results update: Strong quarter

    Mahindra and Mahindra reported a huge jump in quarterly net profit due to last year’s low base, uptick in tractor sales and renewed rural demand.

    The automaker experienced rise in expenses due to spike in raw material prices, but that did not impact the company’s EBITDA numbers.

    The top management believes this year’s good monsoon, “sustained investment in road projects and availability of affordable finance” may rev up the company’s revenues in the future.

    Key Highlights

    • The company registered a 67% profit surge this quarter, which was 11% above our estimate.
    • EBITDA stood at 15.8% (YoY), about 40 bps ahead of our estimates.
    • Tractor volumes increased by 19% (YoY). The management expects this business to grow next year due to launch of a spate of tractor varieties.
    • The auto segment grew by 20% (YoY). The management expects this business to sustain double-digit growth in term of sales volume.
    • The company is set to unroll three new models in the utility vehicle segment. The sales volume is expected be ramped up further because most of these launches will be around the Diwali season.
    • The company seems positive about its electric vehicles and is looking to scale up its manufacturing capacity. Although the sales number this quarter has not been particularly impressive, the company’s tie-up with Ola for electric vehicles will help in the long run.
    • The retail volumes have been the sole blot on an otherwise robust Q1 results. The numbers in this case have nosedived due to confusion over the recently-introduced load-carrying norms for trucks.

    Valuation & outlook

    The automaker is well-placed to gain from high tractor demand, recovery in the SUV business and attractive stock valuation.

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