Shares of Mahindra & Mahindra (M&M) rose nearly 10 percent in 2 days after reporting its March quarter numbers. The rise in sentiment was also upbeat as brokerages increased their target price for the stock post the earnings.

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After rising 7 percent on Friday, the stock rose extended gains to rise as much as 2.35 percent to Rs 520.70 per share on the BSE on Monday. At 10:48 am, shares of M&M were trading 0.95 percent higher at Rs 513.55 apiece.

M&M reported a net loss of Rs 3,255 crore in Q4FY20 on account of one-time exceptional loss of Rs 3,578 crore. The profit before one-time loss stood at Rs 890 crore as against a profit of Rs 1,515 crore in the same period last year, the company said in a regulatory filing.

Farm revenue declined 3 percent YoY but its EBIT margin improved 150 bps to 17.6 percent. The auto segment revenue declined 46 percent YoY and its margin was at 4.1 percent, down 470 bps YoY.

Global brokerages CLSA, Nomura and Jefferies increased their target price for the stock post Q4 numbers.

CLSA raised its target price to Rs 605 per share, while maintaining a 'buy' call on the stock. The company's 4QFY20 operating results came in significantly higher than expectations reflecting the resilience of its tractor business., said the brokerage. Moreover, the company’s management repeatedly emphasized its intentions to tighten capital allocation as well as take decisive action (divestments, alliances & shutdown) with loss-making subsidiaries, it added.

“Management highlighted the near-term goal is to conserve cash and prioritise investment. Both the farm and auto segments will have new product launches in 2HFY21/1HFY22 which should drive its next phase of growth. Inventory across the auto and farm segment are currently below normal levels,” CLSA noted.

CLSA believes a recovery of the company’s core business accompanied by an improving outlook for its consolidated ROE should drive a stock rerating.

“We value M&M based on a 17x FY22CL core (auto + farm) business PE and add the value of its listed subsidiaries after a 30 percent holding company's discount. A delay in the recovery of tractor volume and an increase in non-core investment are key downside risks,” CLSA said.

Meanwhile, Nomura also maintained Buy rating and raised its target raised to Rs 611 from Rs 501 per share as it believes that the company will be the beneficiary of the government’s focus on rural areas.

The brokerage raised its FY21E/FY22E tractor volume estimates to -10 percent/+20 percent from -15 percent/+25 percent. It revised volume estimates up by 1.2-1.5 percent. It noted that the company’s efficient capital allocation will drive re-rating and remains its top pick in the auto space.

However, brokerage house Jefferies has an 'underperform' rating on the stock but still increased its target to Rs 395 per share from Rs 220 earlier. It believes that the company is positive on the rural segment and will launch two new SUVs in FY22.

The stock factors in good tractor outlook and capital allocation change. Tractor outlook is good but a big cyclical upswing is unlikely. The SUV franchise has weakened despite new launches, Jefferies said.

It raised FY21-23 EPS estimates by 5-6 percent on a slightly higher margin.

First Published:Jun 15, 2020 11:54 AM IST