Mahindra & Mahindra hits a new high in anticipation of a robust domestic demand

The share price of the leading passenger vehicle manufacturer – Mahindra & Mahindra rallied over 3.5% on Friday and closed at a new high of Rs 1072.5 in hope of a strong demand. 

In the past month itself, Mahindra outperformed the market thereby gaining 12 percent as compared with a 2.6 percent dip in the S&P BSE Sensex. Interestingly, in the past three months, the stock has rallied 38 per cent, against a 9 percent dip in the benchmark index. 

The company’s Thar and XUV700 models have been the limelight of Indian roads and are witnessing a huge traction of orders. Thus to meet the growing demand, Mahindra has increased its capex plan for its Auto division from Rs 9,000 crore to Rs 11,900 crore. The company’s management anticipates strong demand for its utility vehicles business with the launch of Scorpio-N in June 2022. 

As per the management, they are witnessing strong bookings and have a robust pipeline for the sales of the new model. The announcement of the launch of Scorpio-N is generating very high interest levels and promises to be yet another blockbuster from Mahindra. Not only this but the company’s commercial vehicles have also registered strong growth across segments.

Also, Mahindra which holds the 40 per cent market share in India’s Tractor vertical is leading the growth chart as demand for tractors has seen a sharp 44 per cent jump year-on-year in the first two months of 2022-23, after some moderation in growth in 2021-22. And this has happened due to the timely arrival of the south-west monsoon. Since the kharif crop, this year is expected to deliver record production, food prices continue to be high, ensuring better remuneration for farmers for their produce, thus creating a positive sentiment and higher demand for tractors and agri implements. With the recent launch of Alpha 3, the 3 wheeler division of the company is also doing very well as this model attains a superior battery quality and is gaining a good order value. 

Mahindra’s consistent focus on prudent capital allocation with a vision of achieving more than 18 percent ROCE, aggressive EV launch plans in all vehicle segments remain structural positives. And hence stepping up the capex spend to build capacities in response to robust demand prospects, value creation initiatives to limit net cash outflow, are key triggers for future price performance. 
To grasp a better view about the working of the automobile industry and how Mahindra, Tata and Maruti are ruling the game, please read this blog: https://alphastreet.com/india/is-maruti-no-more-indias-first-choice-the-potholes-in-the-road-ahead/