CLSA cuts Mahindra & Mahindra stock rating to sell, raises target

CLSA cuts Mahindra & Mahindra stock rating to sell, raises target
Credit: © Reuters.

On Friday, CLSA downgraded shares of Mahindra & Mahindra Ltd (MM:IN) (OTC: MAHMF), moving the rating from Outperform to Sell, despite increasing the price target to INR 2,312 from INR 2,115. The change in rating by the investment firm comes after assessing the company's latest financial performance and stock price movement.

Mahindra & Mahindra's consolidated revenue saw a year-over-year increase of 9.3% in the fourth quarter of fiscal year 2024, but its profit after tax (PAT) grew by a modest 4.2%. The subdued PAT growth was attributed to weaker results in its subsidiaries Tech Mahindra (NS: TEML ) and Mahindra (NS: MAHM ) & Mahindra Financial Services.

Despite this, the company's standalone performance exceeded expectations, particularly in the automotive and farm sectors, where earnings before interest and taxes (Ebit) margins surpassed estimates.

The rationale behind the downgrade, as stated by CLSA, is the recent price surge of Mahindra & Mahindra's stock, which the firm believes has left limited room for further upside, estimating a downside of approximately -3%. This suggests that the stock's current price has already integrated the recent positive developments.

In addition to the rating downgrade, CLSA adjusted its price target upwards. This revision reflects a 14.9% and 14.5% increase in the firm's earnings per share (EPS) estimates for fiscal years 2025 and 2026, respectively. The new target price also factors in an anticipated improvement in margin by 50 basis points for both the Auto and Farm segments for the same fiscal years.

The adjustment in valuation also includes a reduction in the weighted average cost of capital (WACC) by 50 basis points, bringing it in line with the average of the firm's coverage universe. This cost of capital adjustment contributes to the higher price target set for Mahindra & Mahindra's shares.

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