Expansion Into EV And High-Growth Sectors Will Strengthen Future Prospects

Key Takeaways

• Strategic initiatives in Auto, Farm, and new markets enhance profitability and revenue through operational efficiency and innovative offerings like EVs.
  
• Expansion in high-growth sectors such as Logistics and Real Estate promises increased revenue and competitive positioning.
  
• Heavy reliance on new electric vehicle launches and challenges in international farm operations could hinder revenue growth and pressure margins.

Catalysts

Provides mobility products and farm solutions in India and internationally.

• Mahindra & Mahindra is working on expanding its market share in both the Auto and Farm segments, with Auto volumes increasing by 16% and Farm volumes by 20%. This should positively impact revenue growth.
  
• The company's focus on improving operational efficiency has resulted in increased margins for both Auto and Farm sectors, with Auto margins rising to 9.7% and Farm margins climbing to 18.1%. This enhances net margins and overall profitability.
  
• Turnaround initiatives in key subsidiaries like Tech Mahindra and Mahindra Finance, with improvements in EBIT and robust growth in profits after tax, are expected to drive consolidated earnings growth.
  
• The company's strategic moves in new markets and innovative product launches in the EV sector are intended to boost revenue and solidify its competitive edge, promising a positive impact on future earnings.
  
• Mahindra & Mahindra's focus on high-growth segments such as Logistics, Hospitality, and Real Estate, including significant land acquisitions, positions it to capitalize on these sectors, likely contributing to increased revenue and margins.

Mahindra & Mahindra Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mahindra & Mahindra's revenue will grow by 10.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 9.1% in 3 years time.
• Analysts expect earnings to reach ₹185.3 billion (and earnings per share of ₹136.73) by about April 2028, up from ₹123.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.4x on those 2028 earnings, up from 26.3x today. This future PE is greater than the current PE for the GB Auto industry at 27.8x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.24%, as per the Simply Wall St company report.

Mahindra & Mahindra Future Earnings Per Share Growth

Risks

• The company's international farm business faces challenges due to macroeconomic factors, impacting farm revenue growth. This could potentially affect overall revenue and net margins.
  
• There is a significant dependency on the success of new electric vehicle launches, where a fast ramp-up could impact quality assurance, affecting earnings and customer retention.
  
• The mark-to-market loss due to the investment in KG Mobility highlights exposure to market volatility, potentially impacting the company's profitability and consolidated earnings.
  
• Heavy investment in electric vehicles (EVs) could lead to substantial depreciation and initial losses, impacting near-term EBIT and overall net margins.
  
• The issue of sourcing and supply chain complexities in EV manufacturing, due to dependence on third-party suppliers for certain elements, could affect cost structures and result in fluctuating earnings.

Valuation

• The analysts have a consensus price target of ₹3478.278 for Mahindra & Mahindra based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹4075.0, and the most bearish reporting a price target of just ₹2640.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹2044.9 billion, earnings will come to ₹185.3 billion, and it would be trading on a PE ratio of 37.4x, assuming you use a discount rate of 21.2%.
• Given the current share price of ₹2917.8, the analyst price target of ₹3478.28 is 16.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.