Shares of Mahindra & Mahindra (M&M) hit a 52-week high of Rs 731, up 4 per cent on the BSE in the early morning trade on Tuesday on the expectation of a strong business outlook. In the past one week, the stock has outperformed the market by gaining 14 per cent, as compared to a one per cent rise in the S&P BSE Sensex.
M&M, on November 17, said that the company’s Farm Equipment Sector (FES) will manufacture a new tractor series called the ‘K2’, exclusively at the company’s tractor manufacturing facility at Zaheerabad in Telangana. The new K2 series is Mahindra’s most ambitious light-weight tractor program. K2 will bring incremental investments of Rs 100 crore into Mahindra’s Zaheerabad facility and double employment in the tractor plant by 2024, the company added.
Analysts at Motilal Oswal Securities have a positive view on M&M owing to a strong recovery in tractors, LCVs recovering in the October-March period (2HFY21), and positive development on capital allocation.
“We were not banking on any positive development in its SUV business, but have taken stock of M&M’s SUV and LCV business in this note. Both businesses have so far positively surprised us. While M&M’s core business would recover faster, the focus on tightening capital allocation could act as a re-rating catalyst. Hence, we see twin levers of EPS growth and re-rating,” the brokerage firm said in a stock update. It maintains a ‘buy’ rating on the stock with a target price of Rs 830 per share.
M&M’s rural exposure through a strong market leadership position in the domestic tractor industry (41.2 per cent market share as of FY20) has benefited it immensely in the post-Covid months. The segment continues to heavily outperform the rest of the auto industry (~40 per cent YoY retail volume growth in June-October 2020 vs. double-digit declines in other segments). Lower pandemic spread and firmer farm incomes are seen resulting in sustained positivity, with the industry expected to post low double-digit YoY volume growth in FY21E, according to analysts at ICICI Securities.
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