M&M outpaces rivals with strong PV volume growth, margin expansion in Q2; becomes Jefferies’ top auto pick

The Indian Passenger Vehicle (PV) industry experienced a subdued September quarter, with Original Equipment Manufacturers (OEMs) reporting varied performance in terms of volume growth and margin trajectories. Industry wholesales, including exports, declined by 1% year-on-year (YoY) during the July-September 2024 quarter.

The competitive dynamics within the sector have undergone significant shifts in recent years. The market shares of the top two players, Maruti Suzuki India and Hyundai Motor India, have dropped to 12-year lows during the first half of FY25.

Amid this broader industry slowdown, Mahindra & Mahindra (M&M) has outperformed its peers with a growing market share and enhanced operational metrics.

Volumes

Mahindra & Mahindra recorded an 18% YoY growth in passenger vehicle volumes during the second quarter of FY25, significantly outperforming its peers. In contrast, Maruti Suzuki India, Tata Motors, and Hyundai Motor India reported volume declines of 2–9% YoY during the same period.

“The competitive landscape has changed meaningfully in recent years, with market shares of the top two OEMs (Maruti Suzuki and Hyundai Motor India) slipping to 12-year lows in H1FY25. M&M is gaining share with favorable demand shift towards SUVs and new product launches; its PV market share climbed to an all-time high of 12.5% in H1FY25. Tata Motors market share rose to an 11-year high of 14.0% in FY23, although has slipped to 13.3% in H1FY25,” Jefferies said in a report.

Operational Performance

M&M’s auto division, encompassing SUVs and commercial vehicles, maintained a flat sequential EBIT margin of 9.5% in Q2FY25, representing a 50 basis point (bps) improvement YoY. In comparison, competitors reported declines in both quarter-on-quarter (QoQ) and YoY EBIT margins.

> Maruti Suzuki: Q2 EBIT margin contracted by 80 bps QoQ and 90 bps YoY to 9.9%.

> Hyundai Motor India: EBIT margin fell by 70 bps QoQ and 30 bps YoY to 9.8%.

> Tata Motors India PV: EBIT margin declined by 10 bps QoQ and a sharper 160 bps YoY to 0.2%.

Strong volume growth and an improved margin trajectory drove a 21% YoY increase in M&M’s auto division EBIT during Q2FY25, in stark contrast to the declines experienced by its peers. Maruti Suzuki and Hyundai Motor India reported 8–10% YoY declines in EBIT, while Tata Motors India PV business saw a dramatic 91% YoY drop, reflecting weak profitability, according to Jefferies.

M&M Preferred Pick

Jefferies expressed optimism about M&M’s robust tractor segment and its improving auto franchise. The report highlighted that the tractor industry appears to be on the brink of a growth cycle. Jefferies projects a 13% volume CAGR and a 19% EPS CAGR for M&M over FY24–27E, with the stock trading at an attractive 22x FY26E core business PE.

The brokerage firm has M&M share price target of ₹3,700 apiece, based on 27x Sep-26E PE for tractors and auto businesses.

In the auto sector, Jefferies identified M&M, along with TVS Motor Company and Eicher Motors, as its preferred picks for investment.

M&M Share Price

Mahindra & Mahindra’s (M&M) share price has declined by over 11% in the past month. However, the stock has delivered a robust performance over the longer term, gaining more than 23% in the last six months. This significantly outperformed the Sensex, which rose over 6%, and the BSE Auto Index, which declined by 0.57% during the same period.

Year-to-date (YTD), M&M shares have surged nearly 65%, compared to a 7% rise in the Sensex and a 23% rally in the BSE Auto Index.

Over the past year, M&M stock price has delivered an impressive return of over 82%, far outpacing the 19.5% gain on the Sensex and the 38.7% rise in the BSE Auto Index.

On Thursday, M&M shares closed 0.38% higher at ₹2,808.70 apiece on the BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.