Multibagger alert! This auto stock is a money making machine; seen rising 44% ahead

Even though, automaker Mahindra & Mahindra (M&) posted a decline its Q4FY19 PAT, yet the stock is seen as a money making magnet ahead on Dalal Street. M&M’s Q4FY19 consolidated PAT dropped by 16% to Rs 969 crore versus Rs 1,155 crore a year ago same period. This was due to muted rural demand, low urban demand and stress in NBFC sector. Meanwhile, consolidated revenue and other income, came in at Rs 14,055 crore up by 5% yoy. Operating margin stood at 13.5% during Q4. Majority of experts believe in nearterm, M&M is seen to face pressure, however, new launches and overall volume will compensate ahead. On Friday, M&M shares closed at Rs 647.10 per piece down by 2.17% on Sensex. Experts have given the stock a buy rating. In fact, investors can expect nearly 44% returns from M&M, if shares are bought at lower levels. 

Here’s what experts said:

Yes Securities: 

Amar Ambani, Head of Research along with Prayesh Jain, Research Analysts here said, “For FY20, M&M has guided for an industry volume growth of 3-5% for PVs, 10-12% for CVs and 5% for tractors. The outlook for CVs and PVs is in line with SIAM forecasts. However, considering the recent outcome of general elections, management is hopeful of a relatively better growth. Tractor industry, following three years of strong growth, is expected to slow down especially in H1 FY20 owing to high base effect. Increasing penetration of mechanization will help in the growth of implements business. The automotive segment will see gyrations owing to the implementation of BS VI norms from April 2020. Inventory management will be a key in this phase. Considering this, we expect M&M to report an uninspiring FY19-21E revenue and PAT CAGR of 8.7% and 2.4% respectively. Valuations appear fair at FY21E standalone P/E of 16x. We assign an ADD rating with a 1-year price target of Rs747.”

Elara Capital: 

Jay Kale and Vijay Gyanchandani said, “We believe UV volume growth will accelerate to 10%+ in FY20E, with the success of the recent launches (XUV 300 & Marazzo). We also are impressed by margin resilience of the auto segment (EBIT margin was up QoQ despite new launch expenses). We remain cautious on the tractor growth outlook for FY20-21, owing to cyclicality and assume a 3% CAGR over FY19-21E. We expect margin pressure over FY20-21, given mix weakening as tractor growth is likely to moderate. We reduce our FY20- 21E standalone EPS by 5-13% to factor in margin and volume cuts. We revise to Accumulate from Buy with a SOTP-based new TP of INR 771 from INR 893. M&M remains a key beneficiary of the government's increased focus on rural India, with ~70% of core volume coming from.”

Motilal Oswal said: 

Jinesh Gandhi and  Deep Shah, Research Analysts here said, “We raise our FY20/21 consol. EPS estimate by 5%/3% to factor in softening RM prices and lower discounts. While MM will likely face a risk in transitioning to BS6 for the diesel portfolio, it is on track to have complete gasoline powertrain across UV models by 2020. On the other hand, an uncertain tractor demand outlook due to the cyclical downturn will likely impact its core business performance. However, these challenges are largely priced in, with the stock trading at 15.1x/15.7x FY20/21E EPS (27% discount to its five-year LPA). Maintain Buy with an SOTP-based TP of INR810 (Mar’21E).”

Reliance Securities: 

Mitul Shah, Research Analysts said, “Looking ahead, we expect M&M to face some margin pressure on account of turbulence in rural economy, competitive environment in domestic UV space, managing BS-VI transition and slowdown in tractor industry. However, we believe that new XUV300 would drive M&M’s overall volume and profitability, going forward. Its success is likely to compensate for slowdown in other segments. In view of government’s rural focus and the Company’s new product launch, we remain positive on M&M.”

Shah also added, “we expect M&M’s volume to clock 6% CAGR over FY19-FY21E aided by rural demand and new launches. Factoring in the ongoing slowdown and impact of BS-VI transition, we lower our volume estimates for (M&M+MVML) by 5%/6% for FY20E/FY21E. In light of price hike post BS-VI implementation, we reduce our revenue estimates by only 1%/4% for FY20E/ FY21E. We reduce our EBIDTA margin estimates by 80bps/70bps and cut our EPS estimates by 7%/10% for the same period.”

Notably, Shah also reteriated saying, “ in the wake of sharp price correction, the stock looks attractive at current valuation. Expecting meaningful improvement in rural demand, strong products and attractive valuation, we reiterate our BUY recommendation on the stock with a revised SOTP-based Target Price of Rs755 (from Rs835 earlier), valuing M&M+MVML at 6.5x of FY21E EBIDTA at Rs502 and subsidiary at Rs253 post 30% discount to mcap.”

Kotak Institutional Equities: 

Hitesh Goel, Nishit Jalan and Rishi Vora, analysts here said, “We have cut our FY2020-21E EPS estimates by 5-8% led by (1) 2% cut in our volume estimates and (2) 50-60 bps cut in our EBITDA margin assumptions. We expect automotive volumes to remain under pressure over the medium term due to regulatory cost pressures. Maintain BUY rating on attractive valuations; SoTP-based fair value reduced to Rs 930 (from Rs 1,000 earlier) based on 14X March 2021E EPS (15X December 2020E EPS earlier).”

If compared the highest target price from current levels, M&M is set to rise by another 43.72% ahead. Hence, investor can place their bet in this automaker.