- Motilal Oswal reaffirms BUY on MM with a INR4,378 target.
- 3Q FY26 PAT hit INR40 billion – exactly on estimate.
- FES margin rose 210 bps YoY to 20.2%; auto margin held steady at 9.5% despite EV rollout.
- Projected FY25‑28 revenue CAGR ~18%, EBITDA CAGR ~18%, PAT CAGR ~20%.
- Company aims for 15‑20% EPS growth and 18% RoE – a robust profitability narrative.
You missed the real story behind MM’s steady margins – and you could be leaving money on the table.
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Why Mahindra & Mahindra’s Margin Mix Signals a New Growth Phase
Motilal Oswal’s report highlights a nuanced margin picture. The Farm Equipment Segment (FES) expanded its operating margin by 210 basis points YoY to 20.2%, reflecting higher pricing power and cost efficiencies in tractor sales. Meanwhile, the automotive arm, despite pushing electric‑vehicle (EV) models, kept its margin flat at 9.5%. For a conglomerate that balances two distinct businesses, a rising FES margin offsets any short‑term pressure in the auto division, delivering a composite margin that is comfortably above 15%.
This blend is crucial because it demonstrates MM’s ability to generate cash from a mature, cash‑flow‑positive segment while investing heavily in the EV transition—a classic “cash‑cow‑plus‑growth‑engine” model that investors love.
Impact of EV Ramp‑Up on Mahindra’s Auto Segment: What the Flat Margin Means
Flat margins in the auto segment often raise red flags, but context matters. MM is scaling its EV lineup, which entails higher upfront R&D spend, new supply‑chain contracts, and initial price competition. The fact that the margin didn’t dip indicates disciplined cost control and a pricing strategy that protects profitability. In other words, the company is absorbing the EV cost curve without sacrificing earnings—a rare feat in a capital‑intensive sector.
Key drivers:
- Strategic partnership with battery suppliers that locks in lower cell costs.
- Platform sharing across ICE and EV models, spreading fixed costs.
- Targeted rollout in tier‑2 and tier‑3 cities where competition is limited.
How Mahindra’s FY25‑28 Revenue and EBITDA CAGR Stacks Up Against Tata Motors and Adani Enterprises
Motilal Oswal projects an 18% revenue CAGR for MM through FY28. Tata Motors, the nearest peer, is forecasting roughly 12‑14% revenue growth, largely because its EV portfolio is still nascent and its commercial vehicle segment faces pricing pressure. Adani Enterprises, while not a pure auto player, is targeting a 20% CAGR across its diversified assets, but a sizable portion comes from energy and logistics, not automotive.
Therefore, MM’s growth trajectory is not only aggressive but also more focused on its core competencies. The higher EBITDA CAGR (also ~18%) suggests that MM can translate top‑line growth into bottom‑line profitability better than Tata, whose EBITDA margin has been pressured by rising raw‑material costs.
Historical Parallel: When MM Beat Its Own Targets – Lessons from FY20‑22
Between FY20 and FY22, MM set an EPS growth target of 12‑15% and RoE of 16%. It actually delivered 17% EPS growth and 19% RoE, surpassing expectations. The catalyst then was the rollout of the new XUV300 and a surge in tractor exports to Africa. The market rewarded the beat with a 25% stock price appreciation over 12 months.
That episode underscores a pattern: when MM exceeds its internal benchmarks, the share price tends to rally sharply, often outpacing broader auto indices. Investors who caught the upside early enjoyed outsized returns.
Technical Corner: Decoding CAGR, RoE, and SoTP for Retail Investors
CAGR (Compound Annual Growth Rate) measures the smoothed annual growth rate over a period, eliminating volatility spikes. A CAGR of 18% for revenue signals consistent expansion.
RoE (Return on Equity) indicates how efficiently a firm uses shareholders’ capital. MM’s target of 18% places it above the industry average of ~14%.
SoTP (Sum of the Parts) valuation aggregates the intrinsic values of each business segment. Motilal Oswal’s target price of INR 4,378 stems from a Dec‑27E SoTP model that values the FES and auto arms separately, then adds a control premium.
Investor Playbook: Bull vs Bear Cases for Mahindra & Mahindra
Bull Case: The EV ramp‑up accelerates faster than peers, FES margin continues to improve, and MM hits the 15‑20% EPS growth corridor. This pushes the stock toward the upper bound of the SoTP range (INR 4,600+). Institutional inflows could amplify the rally.
Bear Case: EV adoption stalls, raw‑material prices surge, or a macro slowdown squeezes auto demand. If the auto margin contracts below 9% and FES growth slows, the CAGR outlook could be revised down to 12‑14%, pulling the price toward INR 3,800.
In either scenario, the BUY rating hinges on MM’s disciplined execution of its dual‑business model and the ability to sustain an 18% RoE. Investors should monitor quarterly margin trends, EV production volumes, and any policy shifts in the agricultural sector that affect tractor demand.