Shares of automotive manufacturer Mahindra & Mahindra (M&M) Ltd rose in Wednesday's trade, taking their six-month gain to 20%. The stock was last seen trading 0.22% higher at ₹1,543.65 today.

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Domestic brokerage firm Nuvama Institutional Equities has a 'Buy' rating on the M&M stock with a target price of ₹1,850 per share that suggested a potential upside of 20% as it expects the auto segment to drive growth.

Nuvama expects a 13% revenue growth, compounded annually over FY23-FY26, despite a muted 5% CAGR (compound annual growth rate) in the farm segment and a robust 14% CAGR in the auto segment.

"Going forward, we expect a 13% revenue CAGR over FY23–26E driven by robust/moderate growth in the auto/farm segment," it said in a note.

Besides, Nuvama reckons better net pricing and scale in the auto segment to boost profitability, driving a core earnings CAGR of 16% over FY23–26. "This would sustain Return on invested capital (ROIC) at 35%-plus," the brokerage said.

As per Nuvama, stock catalysts include production ramp-up and incremental announcements pertaining to electric vehicles (EV).

The passenger vehicle (PV) order book is strong at 286,000 units, led by Scorpio, XUV700 and Thar. Furthermore, production capacity is being raised from 42,000 units a month at present to 49,000 units by March 2024.

EVs are a key focus—plans afoot to launch five electric PVs over December 2024 to October 2026.

Nuvama expects the tractor industry to recover in FY25 on increased government support to farmers ahead of the elections, better agri-credit availability and strong non-agri demand.

Meanwhile, another brokerage Emkay Global has also assigned a 'Buy' rating on the M&M stock, given the undemanding valuations with revised target price of ₹1,690 per share from ₹1,590 earlier.

"For M&M, valuations remain supportive amid reasonably-healthy automotive demand prospects, though farm segment demand is expected to be relatively muted, given the high base," the brokerage said.

PhillipCapital also has a 'Buy' call on the counter with a target of ₹1,681. "Strong demand for the company's UV portfolio continues, while management works on getting the supply right to fulfil orders for the higher end versions, which should further aid margins," the brokerage said.