UBS has upgraded Mahindra & Mahindra (M&M) to ‘Buy’ from ‘Neutral’ and set a revised target price of ₹3,300 (down from ₹3,460 earlier), citing favorable risk-reward dynamics after a 19% correction in the stock price over the past month.
Key Factors Supporting the Upgrade:
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Tractor Upcycle Just Beginning:
- UBS believes the tractor segment is in the early phase of a growth cycle, offering a multi-year demand uptrend for M&M’s farm equipment division, which contributes 30% of the company’s sum-of-the-parts (SoTP) valuation and 40% of EBIT.
- Unlike passenger vehicles, the farm equipment sector faces no imminent regulatory or technological disruptions.
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SUV and EV Market Leadership:
- M&M continues to strengthen its market share in the SUV category, driven by strong product launches and aggressive pricing.
- Electric Vehicles (EVs):
- While 30,000 bookings for recently launched EVs were below Street estimates, UBS still considers it a strong figure, especially when compared to India’s total EV volumes of 12,000 units in January 2025 and 98,000 units in CY24.
- M&M is expected to introduce more SUVs and EVs in FY26, further solidifying its presence in the market.
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Tesla’s India Entry Unlikely to Affect M&M:
- UBS dismisses concerns about Tesla’s impact on M&M’s sales, stating that the high price points of Tesla models will have minimal overlap with M&M’s current product lineup.
- The firm expects M&M’s dominance in the domestic SUV and tractor market to remain intact in the medium term.
Valuation and Market Position:
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Stock Re-Rating & Correction:
- M&M underwent a significant re-rating between March and July 2024 due to strong SUV performance, leading to expensive valuations.
- UBS previously resumed coverage at Neutral in July 2024, citing valuation concerns as the stock was trading 4 standard deviations above its 5-year mean.
- The recent 19% correction in M&M’s stock price (compared to a 13% decline in Nifty Auto index) presents a compelling entry point for investors.
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Growth Outlook:
- FY26 Volume Growth Projection: UBS expects M&M’s volumes to grow by 9% in FY26, significantly outpacing the auto industry’s projected 2% growth.
- M&M’s domestic SUV segment alone accounts for ~50% of EBIT, making it a key driver of profitability.
Conclusion:
UBS sees M&M’s recent correction as an overreaction to EV-related news and believes its SUV and farm equipment businesses remain strong growth drivers. With a 9% volume growth forecast for FY26, continued market share gains in SUVs, and an upcycle in tractors, UBS finds the risk-reward attractive at current levels and upgrades the stock to ‘Buy’ with a target price of ₹3,300.
