Can M&M keep its pace in FY26?

Given that the segment’s average selling price was flat year-on-year at ₹7.3 lakhs, the margin improvement can be attributed to operating leverage from higher volume, lower input costs and favourable model mix in different geographies, especially in the southern and western zones of India.

A caveat here is that this margin should not be extrapolated into future projections. M&M’s management has indicated Q4 margin was high as the industry’s competitive intensity was lower than usual. If competition increases hereon, the margin may revert to normalized level in the coming quarters.

M&M’s Q4 standalone revenue increased 24% year-on-year to ₹31,353 crore, aided by sales volume growth of 23% and 18% in tractors and utility vehicles (UVs), respectively. Ebitda growth was faster at 42% to ₹4,683 crore, thanks to 184 bps margin expansion to 14.9%.

While the Ebitda margin bifurcation of farm equipment and automotive is not available, the former seems to have played a big role in overall margin expansion, going by Ebit margin data. For perspective, automotive margin expansion was relatively muted at 25bps to 9.2%.

The management has guided for mid-to-high teen volume growth in UV for FY26. It has already had a strong start to the year, with 28% growth to 52,330 units in April. M&M plans to expand UV capacity by 12% in FY26 along with new model launches, which should help sustain the growth momentum. As Thar ROXX and XUV 3XO models launched in FY25 are gaining traction, it is likely that the FY26 growth target can be achieved.

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Battery EV drags

While M&M’s dominance in ICE UV stands out at 22.5% revenue market share in FY25, there were worries about its battery electric vehicle (BEV) business and its potential drag on overall financials. Those concerns have eased with Mahindra Electric Automobile (MEAL), engaged in electric passenger car manufacturing, achieving Ebitda of ₹10 crore in its first quarter of operations.

Currently, most of the BEV bookings, nearly 75%, are for larger battery size variants, which offer longer range in travelling but are also more expensive. M&M believes that volume growth could accelerate when smaller battery size variants that are cheaper in price are made available for test drive.

After passenger vehicles, M&M now aims to beef up its truck and bus portfolio. Recently, it acquired SML Isuzu in a deal valued at ₹555 crore. SML has a strong presence in the bus segment, especially in the school bus segment.

Investors aren’t complaining. M&M’s stock has gained about 38% in the past one year, substantially racing ahead of the Nifty Auto index that has remained flat. The stock’s outperformance in a way mirrors the sales volume outperformance of M&M’s UV business compared to the passenger car industry in general and UV in particular. M&M achieved 20% volume growth in its UV sales when passenger vehicle sales grew by a mere 2% in FY25 and industry UV sales rose by 11%.

The management’s commitment to deliver sustainable RoAE (return on average equity) of 18% effectively means an 18% growth in earnings per share (EPS). Excluding the value of subsidiaries, the stock now trades at about 20x FY27 EPS estimates of Nuvama Institutional Equities. The M&M stock, if it delivers on its 18% EPS growth promise, does not appear expensive at a price-to-earnings multiple of 20x.

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