Mahindra & Mahindra SUV launches and margin recovery underpin FY27 growth outlook

Investment View

In its July 30, 2026 results update, Motilal Oswal Financial Services Limited (MOFSL) reiterated its Buy recommendation on Mahindra & Mahindra (M&M), with a fair value of Rs 4,108 per share. The investment case is supported by a healthy product-launch pipeline, positive consumer sentiment, improving automotive profitability and a recovery in farm-sector margins.

MOFSL forecasts revenue, EBITDA and PAT compound annual growth rates (CAGRs) of approximately 16 per cent, 13 per cent and 14 per cent, respectively, over FY26 to FY28.

1QFY27 Financial Performance

M&M reported standalone revenue of Rs 41,919.7 crore in 1QFY27, an increase of 23.0 per cent year on year and broadly in line with MOFSL's estimate. Growth was supported by approximately 14 per cent volume growth and 8.1 per cent blended average selling price growth.

EBITDA increased 4.6 per cent year on year to Rs 5,110.6 crore, broadly matching estimates. However, the EBITDA margin of 12.2 per cent was slightly below MOFSL's 12.5 per cent estimate. Higher raw-material costs reduced gross margin by 350 basis points year on year to 22.0 per cent.

Reported PAT grew 6.8 per cent year on year to Rs 3,690 crore, exceeding MOFSL's estimate of Rs 3,460 crore. The beat was primarily due to other income of Rs 820 crore, which was higher than expected following a gain on the sale of a stake in CIE.

Segment Outlook and Margin Recovery

The automotive segment generated revenue of Rs 31,000 crore, up 24.4 per cent year on year and ahead of MOFSL's Rs 29,300 crore estimate. Its PBIT margin of 7.1 per cent was modestly below the 7.5 per cent estimate.

The farm segment reported revenue of Rs 10,950 crore, up 19.2 per cent year on year and slightly below the Rs 11,370 crore estimate. Its PBIT margin of 18.5 per cent exceeded the broker's 17.5 per cent forecast.

Management expects auto margins to recover gradually from 2QFY27 through pricing, operating leverage and cost optimisation, although commodity prices remain an important monitorable. Farm profitability is expected to improve in the second half as seasonal demand strengthens and commodity inflation moderates.

Product Launch Pipeline and Capacity Expansion

Management has guided for FY27E industry growth of mid-single digits in tractors, mid-to-high teens for M&M utility vehicles and high-single digits for light commercial vehicles (LCVs). MOFSL assumes an M&M utility-vehicle volume CAGR of 14 per cent over FY26 to FY28.

M&M plans to launch 10 internal-combustion-engine (ICE) SUVs, including one mid-cycle enhancement, six battery-electric vehicles (BEVs) and 10 LCVs, including three EVs, by 2031. For CY26, planned launches comprise three ICE SUVs, including two mid-cycle enhancements, two BEVs and two LCVs, including one EV in the below-3.5-tonne category.

SUV capacity is expected to increase from 64,500 units per month to 68,000 units per month by the end of 1HFY27 and to 82,000 units per month by FY27-end. Further expansion at Chakan and a Nagpur greenfield facility is intended to double SUV capacity over five years.

Automotive Operating Commentary

• SUV volumes grew 14.9 per cent year on year in 1QFY27, while LCV volumes grew 20 per cent.
• EV SUV volumes increased 77 per cent year on year, with EV penetration reaching 12 per cent of SUV sales.
• The EV business became EBITDA-positive without PLI incentives.
• Management expects EV profitability to improve through scale, localisation, platform sharing and supply-chain savings, and believes EV margins can converge with ICE margins over the medium term.
• Dealer inventory was approximately 14 to 15 days, while tractor inventory stood at 30 to 40 days.

Supplier disruptions, flooding and component shortages could cause short-term production volatility.

MOFSL Estimate Revisions

MOFSL raised its FY27E and FY28E volume assumptions by 0.9 per cent and its net-sales estimates by 3.6 per cent. It reduced FY27E EBITDA margin by 80 basis points to 12.7 per cent and FY27E PAT by 2.4 per cent to Rs 16,340 crore, while raising FY28E PAT by 2.7 per cent to Rs 20,270 crore.

The broker raised its tractor volume-growth assumption to 4 per cent from nil, supported by management's mid-single-digit industry outlook and rural sentiment. It forecasts a 10 per cent volume CAGR for below-3.5-tonne pick-up and LCV products over FY26 to FY28, noting M&M's 52.3 per cent market share in FY26.

Valuation

MOFSL values M&M on a March 2028E sum-of-the-parts basis. It applies target P/E multiples of 26 times to tractors and 24 times to autos, and values subsidiaries after applying a holding-company discount. The resulting fair value is Rs 4,108 per share.