Mahindra & Mahindra Ltd. (NSE: M&M) has surged over 58% year-to-date – outperforming other NIFTY 50 stocks by magnitudes. Why is it so, considering M&M’s recent struggles in the electric vehicle space? Not to forget the broader headwinds facing the auto industry at the moment. 

 

 

As an investor, you must wonder: Why is this the case? Is it a fluke—a mere temporary blip on the financial radar? Or is it a growth trajectory meant to last long? We’ll give you your answers.

 

Here, we explain what, why, and how of M&M’s phenomenal growth in recent years, if the growth might continue, any potential risks, and provide practical insights for investors.

 

 

M&M’s Catalysts of Growth

There are a couple of (weighty) reasons behind M&M’s speedy growth:

 

The XUV 3XO

 

On April 30, 2024, M&M revealed its latest offering in the compact SUV segment – the XUV 3XO. It wouldn’t be wrong to say it was a watershed moment for the company. It propelled its shares to an all-time high (at that time) of ₹2,169 on the National Stock Exchange. But what makes the XUV 3XO so special?

 

First and foremost, it’s a significant upgrade from its predecessor, the XUV300. The XUV 3XO boasts a revamped design, a new cabin, additional features, and an updated automatic gearbox. These improvements have positioned it as a competitor among competitors in the highly contested compact SUV market.

 

That being said, the true masterstroke lies in M&M’s pricing strategy. With variants ranging from ₹7 lakh to ₹15 lakh, the XUV 3XO has hit the sweet spot of affordability without compromising on quality or features. This is what Indians love. The competitive pricing has not only excited potential buyers but has also instilled confidence in investors, who see immense potential for volume growth and market share expansion.

 

 

Dominating the Utility Vehicle Segment

 

But only one car couldn’t promote such growth – could it? The company has been steadily strengthening its position in the utility vehicle (UV) segment, which now accounts for a staggering 50% of UV volumes and 30% of overall four-wheeler volumes in India. This focus on UVs has paid rich dividends, with M&M’s market share in the category skyrocketing from approximately 8% in FY21 to an impressive 16.3% in FY24.

 

This tremendous growth in market share is a testament to M&M’s ability to read market trends accurately and deliver products that resonate with Indian consumers. The company’s product portfolio, which includes popular models like the Scorpio, XUV700, and Thar, has struck a chord with buyers looking for rugged, feature-rich vehicles that offer value for money.

 

 

Bullish Brokerages and Stellar Product Potential

 

The investment community has taken notice of M&M’s stellar performance, with several leading brokerages turning bullish on the stock. Nomura, a respected name in financial services, believes that the XUV 3XO launch could potentially double M&M’s sales in this segment. They argue that the facelift offers best-in-class features and has the potential to increase sales by an impressive 50-100%, translating to 6,000-8,000 units per month.

 

Investec, another prominent brokerage, has gone a step further by naming M&M as its top pick in the auto OEM space. They cite strong earnings momentum driven by successful product launches as the primary reason for their optimism. With a core valuation of 20x FY26E EPS, Investec considers M&M an attractive buy, reinforcing investor confidence in the stock.

 

 

Consistent Sales Growth

 

Numbers don’t lie, and M&M’s sales and revenue figures tell a compelling story of consistent growth. Over the past ten months, M&M’s UV monthly sales have shown a steady upward trajectory, rising from 36,205 units in June 2023 to 40,631 units in March 2024. This sustained performance is a clear indicator of growing market confidence in M&M’s products and brand value.

 

Here’s M&M’s sales overview:

 

 

The consistent sales growth is particularly impressive given the challenges faced by the auto industry, including supply chain disruptions, semiconductor shortages, and inflationary pressures. M&M’s ability to navigate these headwinds while continuing to grow its sales volumes speaks volumes about its operational efficiency and strategic foresight.

 

 

Looking Beyond the Automotive Sector

Sure, M&M’s automotive division is firing on all cylinders, fueling impressive stock growth. But that’s just part of the story. M&M has significant interests in sectors such as farm equipment, financial services, and renewable energy.

 

The farm equipment division, in particular, has been a steady performer, benefiting from government initiatives to boost agricultural productivity. As India continues to focus on modernizing its agricultural sector, M&M stands to gain from increased demand for tractors and other farm machinery.

 

M&M’s foray into EVs also positions it well for the future of mobility. With the Indian government pushing for EV adoption, M&M’s early investments in this space could yield significant returns in the coming years.

 

 

Risks and Challenges

 

No investment story is complete without considering potential risks, and M&M is no exception. The auto industry is cyclical, and any economic downturn could impact consumer spending on big-ticket items like vehicles. Besides that, rising competition in the UV segment from both domestic and international players could pressure M&M’s market share and margins.

 

The EV landscape is also in flux. Despite making early moves in this space, M&M faces challenges on multiple fronts. Globally, EV growth has shown signs of deacceleration, and consumers are increasingly looking at Hybrids as a more practical option due to factors like range anxiety and charging infrastructure limitations. 

 

Another major point we should remember is that a wave of cheap EVs from China has flooded the market. This situation has led the EU to slap heavy tariffs on these brands. This price competition could further erode margins for traditional automakers like M&M if they cannot achieve similar cost efficiencies.

 

The transition to EVs also presents both an opportunity and a challenge. While M&M has made early moves in this space, it will need to continue investing heavily to stay competitive, which could impact short-term profitability.

 

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Our Take: A Compelling Investment Case

 

Take a look at the above graph. It shows how M&M’s total revenue has grown significantly over the past five years—though more so in the past two years. From March 2020 to March 2024, the company’s revenue has increased by 78.35%. This is a strong indication that the company is well-positioned for future growth.

 

If anything, it tells us that M&M’s current position as the best-performing NIFTY 50 stock is no accident. It’s the result of strategic product launches, astute pricing decisions, and a keen understanding of market dynamics. The success of the XUV 3XO launch, coupled with the company’s growing dominance in the UV segment, has created a perfect storm of investor enthusiasm.

 

For investors particularly looking for exposure to India’s expanding automotive sector, M&M presents a compelling case. While risks exist—as they do with any investment—M&M’s track record of navigating challenges and emerging stronger makes it a stock worth considering for both growth and value investors. 

 

To summarize, Mahindra & Mahindra promises:

 

• • Exposure to India’s growing auto sector.

• • A strong product pipeline.

• • Consistent sales growth and positive momentum.

• • Diversified business interests

• • Ability to overcome challenges.

• • Appealing to both growth and value investors.

If a “rating” must be given, it’s a Bullish from us.

 

As always, potential investors should conduct their research and consider their risk tolerance before making investment decisions. But based on current market trends and the company’s performance, M&M appears well-positioned to continue its impressive run in the Indian stock market.