Target: ₹2,720

CMP: ₹2,514.45

Mahindra & Mahindra’s overall performance in Q4-FY24 beat our estimates on all fronts. Auto margins improved 170bp y-o-y to 8.8 per cent (est. 8 per cent), while FES margins improved to 15.8 per cent (+60bp y-o-y) despite a decline in volumes due to cost optimisation and benign RM costs.

Strong demand momentum for its UVs (new launches + order backlog) and an expected revival in tractor demand (post base correction in FY24) are likely to be the key growth drivers over FY24-26. Capex for autos/farm would be ₹27,000 crore/₹5,000 crore over FY25-27 (Auto ICE/EV=₹14,000 crore/₹12,000 crore), significantly higher than INR131b/INR26b during FY22-24.

M&M declared a final dividend of ₹21.1/share for FY24 (₹16.3 in FY23).

We raise our FY25E/FY26E EPS by 6/11 per cent to factor in better volumes and higher ASP.

While M&M has outperformed its own targets on earnings growth and achieved RoE of 18 per cent in FY24, it maintains long-term guidance of 18 per cent RoE as it has now sharply raised its capex guidance to ₹37,000 crore for FY25-27 from ₹19,500 crore during FY22-24.

The implied core P/E for MM stands at 24/19x FY25E/FY26E EPS, which is still attractive vs. peers. We reiterate Buy with a target price of ₹2,720 (based on FY26E SOTP).