Broker's call: M&M (BUY)

Target: ₹826

CMP: ₹719.70

We reiterate BUY on M&M, led by positive rural sentiments and stable tractor outlook providing margins and cash-flow cushion to compete in the UV business; renewed focus to gain back the lost market share in UV business with new product launches; dominating presence in LCVs to help ride CV upcycle; and increased focus on capital allocation with exit of non-core business like GenZ, USPS (MANA) and Gipps Aerospace (aircraft manufacturing) in HY21.

However, key factors such as increased competition in UVs, led by new entrants; and feedback on newly launched passenger UVs are to be watched out.

We are positive on M&M as better rural sentiments should help drive FES and auto segments over FY21-23. We expect farm and UV segment volumes to grow at 9 per cent and 19 per cent CAGR over FY21-23, led by new launches.

Operating leverage benefits and cost control benefits to help offset RM pressure. Hence, we reiterate BUY with revised SoTP based price target of ₹826 (v/s ₹728). The revision in TP is led by 1) increase in core business target multiple at 15x roll forwarded to Mar-23 earnings (v/s 14x based on Sep-22 for positive product feedback) and 2) increase in subs value to ₹ 190 (v/s ₹ 180 earlier, unchanged at 40 per cent ).