M&M shares rally over 5% as Morgan Stanley raises target price by over 28%

Updated : February 04, 2021 12:50 PM IST

M&M's share price has gained as much as 17 percent in the last three days.

The research firm believes the earnings upgrade cycle, ROE focus, and macro tailwind will drive the next leg in trade.

Shares of Mahindra & Mahindra extended gains for the fourth day after Morgan Stanley listed the automaker as one of its top picks in the auto sector, raising its target price by over 28 percent.

Maintaining its ‘overweight’ stance on the stock, Morgan Stanley upgraded the target price on M&M shares from Rs 865 to Rs 1,112 apiece. The global brokerage believes the earnings upgrade cycle, ROE focus, and macro tailwind will drive the next leg in trade.

Having sold over 20,000 units in Jan 2021, M&M reported a 4 percent YoY increase in its overall sales. Its exports are up 30 percent and tractor sales jumped 50 percent YoY in January.

The new Thar is also gaining traction in the market, the analyst said, implying 65 percent growth if measured over a year.

The company’s management has claimed an RoE of 18 percent, and if that comes true, then its price-to-book ratio will rise above 3 percent. In that case, MS will increase the target price to Rs 1400. Adding electric vehicles business to its estimates, MS arrived at a bull case target price of Rs 1800 per share.

The auto major is expecting double-digit growth in the FY 2021, said Hemant Sikka, President of the auto major.

"We are in the process of capacity addition, but in the current year if we are able to do double-digit, of which we are confident, we will be happy with it," said Sikka in an interview with CNBC-TV18.

The stock has gained as much as 17 percent in the last three days. On Thursday, the shares were up as much as 5.5 percent in early morning trade, taking its price to Rs 879 apiece.

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Published : February 04, 2021 12:46 PM IST