EQUITY RESEARCH REPORT ON THE INDIAN AUTOMOBILE SECTOR: A COMPANY ANALYSIS OF MAHINDRA & MAHINDRA LTD

Abstract

Overview of the Indian Automobile Sector The Indian automobile industry is a key driver of economic growth, contributing ~7% to GDP and employing over 35 million people. The sector is undergoing rapid transformation due to:  EV adoption (Government’s 30% EV target by 2030 under FAME II).  Premiumization trend (rising SUV demand).  Supply chain disruptions (semiconductor shortages, commodity price volatility).  Regulatory shifts (BS6 norms, CAFE 2, and scrappage policies). Mahindra & Mahindra (M&M) – Key Highlights  Market Position: Leader in tractors (~40% market share) and strong in SUVs (Thar, Scorpio, XUV700).  Financial Performance: o Revenue Growth: CAGR of ~9.5% (FY15-FY24). o Margins: EBITDA margin improved to ~20% (FY24) due to premiumization. o ROE: Recovered to 17% (FY24) post-pandemic.  Challenges: o EV Transition: Lagging behind Tata Motors in EV market share. o Global Footprint: Limited presence outside India. o Commodity Costs: Rising steel/aluminum prices impacting margins. Valuation Insights  DCF Valuation: o Terminal growth @4% → ₹5,470 (Undervalued vs. CMP of ₹1,921).  Relative Valuation: o P/E (vs. peers): Undervalued based on industry median (₹5,978 vs. CMP). o EV/EBITDA: Undervalued (₹10,077 vs. CMP).Key Recommendations 1. Accelerate EV Strategy: Expand Born Electric platform, secure battery supply chains. 2. Enhance Global Presence: Target right-hand drive markets (ASEAN, Africa). 3. Cost Optimization: Mitigate commodity risks via localization. 4. Premium Portfolio Expansion: Leverage SUV dominance with tech-enabled features. 5. Rural & Farm Focus: Introduce affordable EVs for rural mobility. Investment Verdict  Undervalued based on DCF and relative valuation.  Long-term Growth Drivers: EV push, rural demand, and premium SUV segment.  Risks: Competition (Tata, Hyundai), commodity inflation, and policy changes.