Buy This Multibagger Large Cap Auto Sector Stock, Shares Can Surge 10%, Recommended By Motilal Oswal

Motilal Oswal, a leading brokerage firm, in its recently published report on Mahindra & Mahindra Ltd (MM) has given a buy call to the stock of the company for a target price of Rs 1,432 crore. Considering the estimated targeted price by the brokerage, the stock of the company could jump up to 10% gains in 12 months.

Mahindra & Mahindra is a large cap auto sector company. It is one of the most diversified automobile companies in India with a presence across 2-wheelers, 3-wheelers, PVs, CVs, tractors & earthmovers.

It also has presence across financial services, auto components, hospitality, infrastructure, retail, logistics, steel trading and processing, IT businesses, agri, aerospace, consulting services, defence, energy and industrial equipment through its subsidiaries and group companies.

Stock Outlook

On BSE, the current market price of the stock after Friday's close is Rs 1,312 apiece. The 52 week low of the stock is Rs 671.15 apiece and the 52 week high is Rs 1,338 apiece, respectively. The market capitalization of the company is Rs 1,62,193 crore.

Returns on Investment

The stock over the past1 week has given 1.26% positive return and in the past 1 month, 3.7%, respectively. Whereas, in the past 3 months and 1 year, the stock surged and gave a positive return of 28.13% and 74.09%, respectively. In the past 3 years and 5 years, the stock has given a multibagger return of 136.92% and 102.36%, respectively.

BE brand EVs to open new spaces beyond pure SUVs

Motilal Oswal said, "We attended MM's investor meet where the focus was on its Electric SUV strategy. This meeting built-on further from the EV event in the UK and the recent XUV400 launch. The management's EV strategy pivots on two brands, with the focus on maintaining its legacy (XUV) and exploring new spaces under the BE brand. It will continue to collaborate on the technology front with global players, with a focus on differentiation, by offering a strong product-price combination."

The key highlights of the meet were as follows:

Two EV brands

MM will be using two brands - 'XUV' and 'Born Electric' (BE) - for its Electric Vehicles. While the XUV brand will be consistent with its SUV legacy, the BE brand will open up new spaces and form factors (beyond pure SUVs). In EVs, it will continue to operate in existing segments and will not venture in the Luxury segment.

 

XUV400

The XUV400 is the first e-SUV from MM. After this, it plans to launch four eSUVs on the Born EV platform: XUV.e8 (Dec'24), XUV.e9 (Apr'25), BE.05 (Oct'25), and BE.07 (Oct'26). The fifth model - BE.09 - is still at the concept stage, with no clear timelines for the launch at this point in time.

The XUV400 offers best-in-class acceleration, safety, range, style, and space. The test drives will begin from Dec'22, while bookings and deliveries starting in Jan'23.

It has invested INR6b on the XUV400 towards the battery pack, BMS, floor changes, body changes, etc.

The management feels cell availability will be the biggest bottleneck for XUV400, as everything is localized, apart from the cells and motors. The battery is designed by AVL, with the cell sourced from South Korea, and the battery produced at its Chakan plant. It sources the motor from Valeo, with the integration of the motor, controller, and ECU being undertaken by BluSend. The XUV400 doesn't use any components from its sourcing arrangement with VW.

MM will invest INR100b on four BEVs, XUV400, its manufacturing capacity, etc. It won't invest on charging infrastructure, but will collaborate on the same.

Charging infrastructure

It is in the final stages of signing three MoUs, which focus on: a) private charging (home and office), b) fast charging at dealerships, and c) leveraging its existing charging infrastructure.

Its JV with VW targets more than 1m units over its lifetime, including components for all five Born EV SUVs.

Valuation and view

According to the brokerage, "While the outlook for Tractors is murky, we expect the Auto business to be a key driver of growth over the next couple of years. Despite a deterioration in the mix, we expect a revenue/EBITDA/EPS CAGR of ~21%/29%/~27.5% over FY22-24. Implied core P/E for MM stands at 14.2x/13.8x FY23E/FY24E EPS. While the stock is still cheap as compared to its peers, it has got substantially re-rated over the last two quarters and is now trading at a premium to its five-year average core P/E (against a discount of 30% earlier). The premium to its LPA has been a reflection of its strong performance in the SUV segment, cyclical recovery in LCVs, and improvement in its outlook for the Tractor business (from Apr-Jun'22). We maintain our Buy rating, with a TP of INR1,432 (Sep'24E based SoTP)."

 

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.