Mahindra & Mahindra: Experts say buy this hot stock, catalyst will come from upcoming budget

Experts believe that Mahindra & Mahindra is a hot stock on Dalal Street. Mahindra is well placed in the auto segment due to marketshare gain, good demand for trucks and BSVI rollout in April, 2020 and this caused leading experts to give a buy rating.  So, here is why you should buy Mahindra stock!

Jigar Shah and Vikram Ramalingam, analysts at Maybank Kim Eng said, “We remain sanguine on MM’s recovery prospects for 2HFY20 as it is well positioned to benefit from a recovery in its stronghold rural market due to direct cash transfers to farmers. The other positive is MM’s market share gain in SUVs following three new model launches in the past 6-8 months and expected buying of trucks ahead of the BSVI rollout in April 2020. Our 15% lower TP of INR813 still offers 29% upside (we value the core business at 12x PER vs 15x previously and assign INR316/sh to investments).”

For FY20, the duo believes that, the softening of margins in FY20E would be largely due to a dip in the high-margin tractor volume (900bps higher than autos). The company would also incur higher expense due to the transition to BSVI emission norms by April 2020. These expenses will not recur in FY21, allowing the margin to claw back. A further fall in FY20E earnings will be cushioned by a rise in other income on surplus cash/investments. 

Thereby, they added, “We believe a catalyst for auto/tractor demand will come from measures in the upcoming central budget. The transfer of the three interest rate cuts to consumers should also stimulate demand again. MM is well prepared for BSVI transition and has achieved 99% localisation enabling it to offer new products to customers with the least possible price increase. The stock could re-rate on greater evidence of a recovery.” 

Hence, Maybank experts havegiven a buy rating with a target price of Rs 813, with an upside of 27%.