“We were not banking on any positive development in its SUV business, but have taken stock of M&M’s SUV and LCV business in this note. Both businesses have so far positively surprised us. While M&M’s core business would recover faster, the focus on tightening capital allocation could act as a re-rating catalyst. Hence, we see twin levers of EPS growth and re-rating,” the brokerage firm said in a stock update. It maintains a ‘buy’ rating on the stock with a target price of Rs 830 per share.
M&M’s rural exposure through a strong market leadership position in the domestic tractor industry (41.2 per cent market share as of FY20) has benefited it immensely in the post-Covid months. The segment continues to heavily outperform the rest of the auto industry (~40 per cent YoY retail volume growth in June-October 2020 vs. double-digit declines in other segments). Lower pandemic spread and firmer farm incomes are seen resulting in sustained positivity, with the industry expected to post low double-digit YoY volume growth in FY21E, according to analysts at ICICI Securities.
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