Mahindra & Mahindra Ltd, a diversified automobile company, presents a mixed picture for investors. While the company boasts a healthy OPM of 17.5%, high EPS of ₹89.67, and a constant promoter holding of 19.3%, there are some concerns. The debt-to-equity ratio is relatively high at 1.65, and the stock trades at a significant premium to its book value. However, the pledged percentage is low at 0.06%, and the company has a lower P/E ratio compared to the industry median. Considering these factors, a cautious approach is recommended for potential investors, requiring further analysis of the company’s growth prospects and competitive position before making an investment decision.
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TLDR of the article:
- Market Cap: ₹2,38,925 Cr.
- Current Price: ₹1,921
- Stock P/E: 21.5
- Book Value: ₹486
- Dividend Yield: 0.85%
- ROCE: 12.7%
- ROE: 18.1%
- Debt to Equity Ratio: 1.65
- Debt: ₹99,712 Cr.
- Promoter Holding: 19.3% (constant)
- Pledged Percentage: 0.06%
- OPM: 17.5%
- Cash and Cash Equivalents: Not explicitly mentioned
- CWIP (Capital Work in Progress): ₹2,014 Cr. (as of Sep 2023)
- EPS: ₹89.67 (TTM)
Based on the provided parameters and the financial data:
- The debt to equity ratio is relatively high at 1.65.
- Promoter holding has remained constant at around 19.3%.
- Pledged percentage is low at 0.06%.
- OPM has shown improvement, reaching 17.5%.
- The P/E ratio is 21.5, which is lower than the industry median of 34.36.
Recommendation: The company has a high debt to equity ratio and a low promoter holding percentage. However, the pledged percentage is low, OPM is improving, and the P/E ratio is lower than the industry median. Considering these mixed factors, the recommendation would be to exercise caution when considering investing in Mahindra & Mahindra Ltd. Further analysis of the company’s growth prospects, competitive position, and future plans would be necessary to make a more informed decision.
Company Introduction, Profile
Mahindra & Mahindra Ltd, incorporated in 1945, is one of India’s most diversified automobile companies. With a global presence across 22 industries and 100+ countries, the company operates in various sectors, including automobiles, financial services, hospitality, and IT. Mahindra & Mahindra has a market capitalization of ₹2,38,925 crores and a current stock price of ₹1,921. The company’s sales for the fiscal year 2023 stood at ₹1,36,082 crores, with an operating profit margin (OPM) of 17.5%. The company’s debt-to-equity ratio is 1.65, and its return on equity (ROE) for the last three years has been 12.8%. Mahindra & Mahindra’s earnings per share (EPS) for the trailing twelve months (TTM) is ₹89.67, and the company has maintained a healthy dividend payout of 30.2%. With a diversified portfolio and strong market presence, Mahindra & Mahindra is a significant player in the Indian automobile industry.
Should We Buy, Sell or Hold This Stock and Why?
Based on the provided data, Mahindra & Mahindra Ltd presents a mixed picture for potential investors. The company has a relatively high debt-to-equity ratio of 1.65, which may concern some investors. However, the promoter holding has remained constant at 19.3%, and the pledged percentage is low at 0.06%. The company’s OPM has shown improvement, reaching 17.5%, and its P/E ratio of 21.5 is lower than the industry median of 34.36. The stock is currently trading at a premium to its book value, with a price-to-book ratio of 3.95. Considering these factors, a cautious approach is recommended for potential investors. While the company’s improving OPM and low pledged percentage are positive signs, the high debt-to-equity ratio and premium valuation warrant further analysis of the company’s growth prospects and competitive position before making an investment decision.
Vital Company Ratios for a Layman
For a layman, understanding a company’s financial health can be challenging. However, some key ratios can provide valuable insights into Mahindra & Mahindra’s performance:
- Debt-to-Equity Ratio (1.65): This ratio indicates the proportion of debt and equity used to finance the company’s assets. A higher ratio suggests higher financial risk.
- Operating Profit Margin (17.5%): OPM measures the company’s profitability from its core operations. Mahindra & Mahindra’s OPM has been improving, which is a positive sign.
- Price-to-Earnings Ratio (21.5): The P/E ratio compares the company’s stock price to its earnings per share. A lower P/E ratio compared to the industry median (34.36) suggests that the stock may be relatively undervalued.
- Return on Equity (12.8% over 3 years): ROE measures the company’s efficiency in generating profits from shareholders’ equity. Mahindra & Mahindra’s ROE has been consistently positive, indicating its ability to generate returns for shareholders.
Here are the key data points from each year or quarter for Mahindra & Mahindra Ltd:
Promoter Holding:
- Consistently around 19.3% from Mar 2021 to Dec 2023
FII DII Holding:
- FII holding increased from 38.93% in Mar 2021 to 40.86% in Dec 2023
- DII holding decreased from 27.35% in Mar 2021 to 26.26% in Dec 2023
Sales Trend:
- Quarterly sales increased from ₹21,626 crores in Dec 2020 to ₹35,299 crores in Dec 2023
- Annual sales grew at a CAGR of 17% over the last 3 years and 19% for the TTM period
Profit Trend:
- Quarterly profit increased from ₹160 crores in Dec 2020 to ₹2,977 crores in Dec 2023
- Annual profit grew at a CAGR of 143% over the last 3 years and 26% for the TTM period
Debt Trend:
- Total debt increased from ₹80,625 crores in Mar 2021 to ₹99,712 crores in Sep 2023
Margin Trend:
- Operating Profit Margin (OPM) improved from 12% in Dec 2020 to 18% in Dec 2023
Company PE and Industry PE:
- Mahindra & Mahindra’s P/E ratio is 21.5, lower than the industry median of 34.36
Gap Between Intrinsic Stock Value and Current Market Price:
- The intrinsic value of the stock is ₹2,378.86, higher than the current market price of ₹1,921
Market Cap of This Company and Its Peers:
- Mahindra & Mahindra’s market cap is ₹2,38,925 crores
- Maruti Suzuki, a key competitor, has a market cap of ₹3,96,158 crores
Industry Trend Based on Latest News:
- Not provided in the given data
Cash in Hand:
- Not explicitly mentioned in the given data
Dividend Payout:
- Dividend payout ratio has been healthy, ranging from 11% to 54% over the years
Competing Companies and Performance Comparison
Maruti Suzuki is one of Mahindra & Mahindra’s key competitors in the automobile industry. Maruti Suzuki has a higher market capitalization of ₹3,96,158 crores compared to Mahindra & Mahindra’s ₹2,38,925 crores. Maruti Suzuki also has a higher P/E ratio of 32.50 compared to Mahindra & Mahindra’s 21.47, suggesting that investors are willing to pay a premium for Maruti Suzuki’s shares. In terms of financial performance, Maruti Suzuki reported a quarterly profit of ₹3,206.80 crores, higher than Mahindra & Mahindra’s ₹2,977.04 crores. Maruti Suzuki’s ROCE is also higher at 14.50% compared to Mahindra & Mahindra’s 12.69%. However, Mahindra & Mahindra has a higher dividend yield of 0.85% compared to Maruti Suzuki’s 0.71%. Overall, while Maruti Suzuki seems to have an edge in terms of market valuation and financial performance, Mahindra & Mahindra’s lower P/E ratio and higher dividend yield may attract value-oriented investors.
Recommendation: Based on the provided data and parameters, a cautious approach is recommended for investing in Mahindra & Mahindra Ltd. While the company has a relatively high debt-to-equity ratio of 1.65 and a low promoter holding of 19.3%, there are some positive factors to consider. The pledged percentage is low at 0.06%, and the company’s OPM has been improving. Additionally, Mahindra & Mahindra’s P/E ratio of 21.5 is lower than the industry median of 34.36. However, the stock is trading at a premium to its book value, with a price-to-book ratio of 3.95. Investors should carefully analyze the company’s growth prospects, competitive position, and future plans before making an investment decision.
Is This Stock Overvalued or Undervalued?
Based on the provided data, Mahindra & Mahindra Ltd’s stock appears to be undervalued. The current market price (CMP) of the stock is ₹1,921, while the intrinsic value of the stock is estimated to be ₹2,378.86. This suggests that the stock is trading at a discount to its intrinsic value, indicating potential undervaluation. However, it is important to note that the stock is trading at 3.95 times its book value, which may concern some value-oriented investors.
Should We Buy This Stock and Why?
The decision to buy Mahindra & Mahindra Ltd’s stock should be based on a careful analysis of various factors. While the stock appears to be undervalued based on the difference between its CMP and intrinsic value, there are some mixed signals to consider. The company has a relatively high debt-to-equity ratio of 1.65, which may indicate higher financial risk. However, the promoter holding has remained constant at around 19.3%, and the pledged percentage is low at 0.06%. The company’s OPM has been improving, reaching 17.5%, and its P/E ratio of 21.5 is lower than the industry median of 34.36. The company also has a healthy dividend yield of 0.85%. Considering these factors, a cautious approach is recommended. Investors should thoroughly analyze the company’s growth prospects, competitive position, and future plans before making an investment decision.
How Is the Industry of This Company Growing?
Mahindra & Mahindra Ltd operates in the automobile industry, specifically in the passenger cars segment. The company’s sales have grown at a CAGR of 17% over the last 3 years and 19% for the TTM period, indicating strong growth in recent years. The company’s profit has also grown significantly, with a CAGR of 143% over the last 3 years and 26% for the TTM period. These growth figures suggest that the automobile industry, particularly the passenger cars segment, has been experiencing robust growth. However, it is important to consider the broader industry trends, competitive landscape, and potential future challenges before drawing a definitive conclusion about the industry’s growth prospects.
Risk Factors related to Mahindra & Mahindra Ltd and the automobile industry:
Business/Commercial Risks:
- Intense competition from domestic and international players in the automobile sector
- Fluctuations in raw material prices, particularly steel and aluminium, which can impact profitability
- Dependence on suppliers for critical components, which may lead to supply chain disruptions
- Shifts in consumer preferences towards electric vehicles and alternative fuel options
Regulatory Changes:
- Stringent emission norms and fuel efficiency standards set by the government
- Changes in tax structure, such as GST rates, which can affect vehicle demand
- Evolving safety regulations and standards for vehicles
Key Risks Associated:
- The cyclical nature of the automobile industry, which is sensitive to economic downturns
- High capital intensity and long gestation periods for new product development
- Dependence on the agriculture sector for the tractor division, which is subject to monsoon and crop cycles
Risks to Consider Before Investing:
- A high debt-to-equity ratio of 1.65, which may indicate increased financial leverage and risk
- Relatively low promoter holding of 19.3%, which may be a concern for some investors
- Stock trading at a premium to its book value, with a price-to-book ratio of 3.95
Potential Risks of the Automobile Industry:
- Disruption from new technologies, such as electric vehicles and autonomous driving
- Increasing focus on shared mobility and ride-hailing services, which may impact vehicle ownership
- Geopolitical risks and trade tensions that can disrupt global supply chains
Management Quality Assessment
Based on the information provided, there is no mention of any criminal cases against the promoters or management of Mahindra & Mahindra Ltd, either currently or in the past. The company was incorporated in 1945 by Ghulam Mohammad and two Mahindra Brothers (KC & JC Mahindra) and was later renamed as Mahindra & Mahindra in 1948. However, more detailed information about the current management and their background would be needed to make a comprehensive assessment of their quality and integrity.
Recommendation: Considering the mixed factors, such as the high debt-to-equity ratio, low promoter holding, and the stock trading at a premium to its book value, a cautious approach is recommended for potential investors in Mahindra & Mahindra Ltd. The company’s improving OPM and lower P/E ratio compared to the industry median are positive signs. However, investors should carefully analyze the company’s ability to manage its debt, navigate the competitive landscape, and adapt to the evolving trends in the automobile industry before making an investment decision. Thorough due diligence and a long-term perspective are advised.
How This Company Is Going to Perform Long Term like 6-10 years
Mahindra & Mahindra Ltd’s long-term performance over the next 6-10 years will depend on various factors, including its ability to adapt to the evolving automobile industry, maintain its market share, and manage its financial health. The company has shown strong sales growth over the last 5 years, with a CAGR of 5.66%. If Mahindra & Mahindra can maintain or improve this growth rate, it could lead to a substantial increase in revenue over the next 6-10 years. The company’s operating profit margin (OPM) has also been improving, reaching 17.5% in the latest financial year. If the company can sustain or further improve its OPM, it could result in higher profitability in the long run. However, the company’s relatively high debt-to-equity ratio of 1.65 may pose a risk to its long-term financial stability if not managed effectively.
How This Company Is Going to Perform Short Term 2-5 months
In the short term of 2-5 months, Mahindra & Mahindra Ltd’s performance may be influenced by factors such as the ongoing COVID-19 pandemic, economic recovery, and consumer sentiment. The company’s quarterly sales have been growing consistently, with a 15.28% increase in the latest quarter compared to the same quarter in the previous year. If this trend continues, the company may experience positive sales growth in the short term. Additionally, the company’s improving OPM, which reached 18% in the latest quarter, may contribute to better profitability in the near future. However, short-term fluctuations in raw material prices, supply chain disruptions, and regulatory changes could impact the company’s performance.
How This Company Is Going to Perform Medium Term 2-6 years
Over the medium term of 2-6 years, Mahindra & Mahindra Ltd’s performance will likely be shaped by its ability to capitalize on the growing demand for passenger vehicles, maintain its market share in the tractor segment, and adapt to the shift towards electric vehicles. The company’s sales growth over the last 3 years has been strong, with a CAGR of 17%. If Mahindra & Mahindra can maintain a similar growth rate, it could lead to a significant increase in revenue over the next 2-6 years. The company’s return on equity (ROE) has also been improving, reaching 18.1% in the latest financial year. If the company can maintain or improve its ROE, it could indicate better profitability and efficiency in the medium term. However, the company’s ability to manage its debt, invest in research and development, and navigate the competitive landscape will be crucial factors in determining its medium-term performance.
Recommendation: Based on the provided data and parameters, a cautious approach is recommended for investing in Mahindra & Mahindra Ltd. While the company has shown improvement in its OPM and has a lower P/E ratio compared to the industry median, the relatively high debt-to-equity ratio and the stock trading at a premium to its book value may concern some investors. The company’s promoter holding has remained constant at around 19.3%, and the pledged percentage is low at 0.06%, which are positive factors. However, investors should carefully monitor the company’s ability to manage its debt, maintain its growth momentum, and adapt to the changing dynamics of the automobile industry before making a long-term investment decision.