But with competition heating up and the stock trading at historical highs, the next question is: can M&M sustain its dream run over the next three years, or is the best of the rally already in the rear-view mirror?
Breaking down M&M’s growth story
Over the past five years, M&M’s sales and profit have grown at a robust compound annual rate of 6% and 15%, respectively. More importantly, return ratios have been on an upswing, with thereturn on equity and return on capital employed averaging 14.9% and 12%, respectively.
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Let’s dive into the key factors driving this growth.
#1 The SUV boom: M&M’s biggest strength
M&M has made a name for itself in India’s SUV segment, not just by selling more vehicles but by moving up the value chain. The company has shifted its focus to premium SUVs, which now contribute over 50% of total sales. Higher-margin models such as Scorpio-N, Thar and XUV700 continue to have long waiting periods, cementing M&M’s pricing power.
While global companies and domestic rivals are ramping up their SUV game, M&M’s strong brand loyalty and differentiated offerings give it a solid edge.
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#2 EVs: Late to the party, but charging up
M&M has been a laggard in India’s EV race, especially compared to Tata Motors, which moved early and aggressively. The company is now playing catch-up with a two-pronged approach: electric SUVs and last-mile mobility.
The XUV400, M&M’s first mainstream EV, has seen a decent response, but hasn’t been a game-changer like Tata’s Nexon EV. The real test for M&M will come in 2025-26, when it rolls out its next-gen electric SUVs including the XUV.e8 and BE.05.
Meanwhile, M&M’s last-mile mobility division—comprising TreO, Zor, and Alfa 3W EVs—has been gaining ground. The segment has the potential to be a steady growth driver, but scaling it up won’t be easy in an industry where margins remain thin and execution risks high.
#3 Tractor business: A cyclical growth lever
M&M is also India’s largest tractor manufacturer. The farm equipment segment contributes 30-35% of the company’s total revenue, making it a crucial pillar of the business.
While the segment has seen some softness recently owing to an erratic monsoon, the long-term outlook remains positive. India’s rural economy is expected to recover in FY25-26, supported by higher government spending and better farm incomes.
M&M has also been expanding its global footprint, increasing tractor exports to markets such as the US, Africa and Latin America. However, tractors are a cyclical business, and any prolonged weakness in rural demand could be a drag on M&M’s overall performance.
The recent performance has been admirable. The auto major has been riding a strong wave across its auto and farm businesses, positioning itself well for the next leg of growth.
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Strong Q2 & Q3 performance
The company’s SUV portfolio continues to shine, with sales up 20% year-on-year to 1.42 lakh units in Q3FY25.
Premium models such as Thar, Scorpio-N and XUV700 remain in high demand, giving M&M a strong hold over the SUV market.
The ability to command premium prices for these models has been a key driver of profitability, helping autoEBIT margins touch an all-time high of 9.7%. Even as competition heats up, M&M has managed to maintain long waiting periods for its popular models, highlighting sustained demand.
The light commercial vehicle (LCV) segment, though not as high-profile as SUVs, has also shown resilience. Sales grew 7% year-on-year to 67,500 units, reflecting steady demand from logistics and last-mile delivery players.
With e-commerce penetration rising and infrastructure spending picking up, LCVs remain a steady contributor to M&M’s commercial vehicles business.
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M&M’s tractor business — generally influenced by monsoons and rural sentiment — posted robust 19.8% year-on-year growth. The company has made strong market-share gains in the 20-30 HP segment through its Swaraj and Oja brands, reinforcing its dominance in the tractor industry.
EBIT margins for this segment surged to 18.1%, driven by operating leverage, a better product mix, and pricing discipline.
M&M’s leadership in tractors gives it a strong foundation, supported by its global expansion into key international markets such as the US, Africa, and Latin America.
With a well-diversified auto and farm portfolio, M&M has managed to balance cyclical risks while capitalising on industry tailwinds.
Looking ahead: M&M’s next growth phase
M&M is making a bold push into EVs, with a clear strategy to scale up aggressively. The company has earmarked ₹16,000 crore for EV investments until FY27, with ₹4,500 crore already deployed towards powertrain development, manufacturing capacity and software.
Unlike Tata Motors, which was an early mover, M&M has taken a more measured approach, but it’s now gearing up for a serious expansion.
New models such as the BE 6e and XEV 9e are set to hit the market soon, with a target of 5,000 units a month. These EVs are competitively priced, with real-world range estimates of 420-500 km and premium features aimed at bridging the gap with global luxury brands.
The company is also setting up a dedicated EV manufacturing facility at Chakan, with an annual capacity of 90,000 units, and expects it to be operational by March 2025.
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The EV business is still new, and M&M expects profitability to improve as volumes increase. Currently, EVs are housed under a subsidiary, MEAL, which will absorb the initial costs, helping limit the direct impact on the parent company’s balance sheet.
Near-term pressure on margins is inevitable, but M&M’s management remains confident that over time, variable margins for EVs will match those of internal combustion engine (ICE) vehicles.
That said, M&M’s traditional auto business remains the backbone of its profits. The company has ramped up production for its high-demand models, Thar and XUV 3XO, by 2,000 units each to meet rising demand.
The SUV segment remains a stronghold, and M&M is betting that its mix of premium and mass-market models will help it sustain growth even as competition intensifies.
On the farm side, M&M expects industry growth of over 15% in Q4FY25, supported by better rural incomes and government spending. The cyclical nature of the tractor business remains a challenge, but the company has been expanding its footprint in global markets such as the US, Africa and Latin America, which provides some cushion against domestic slowdowns.
With a dominant position in India and increasing exports, the farm segment remains a key pillar of M&M’s long-term strategy.
While EV investments may weigh on near-term profitability, M&M’s diversified approach—leveraging its strong SUV portfolio, expanding its global presence, and strategically scaling up EVs—positions it well for the future.
Other growth engines: Mahindra Finance & Tech Mahindra
Beyond its core auto and farm businesses, M&M has two sizable subsidiaries—Mahindra Finance and Tech Mahindra—both with the potential to unlock significant value. However, their performance in recent years has been underwhelming, weighed down by operational challenges.
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#1 Mahindra Finance: Fixing asset quality, scaling up new growth avenues
Mahindra Finance has seen robust growth, but asset quality has been a weak spot, particularly during the covid years. The company is now working on stabilising credit quality while expanding into high-growth financial services segments.
To drive the next phase of growth, Mahindra Finance is investing heavily in digitisation, transforming both customer-facing and internal processes to cater to an increasingly tech-savvy Indian market. The company is also forging strategic partnerships to expand into fee-based products and services, creating new revenue streams beyond traditional lending.
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#2 Tech Mahindra: Turning the corner on margins
Tech Mahindra has struggled to keep pace with its peers, particularly on margins, even as the overall IT sector has faced a slowdown. However, with global demand expected to recover in the coming year, the company is taking aggressive steps to reposition itself for growth.
Its strategy revolves around deep tech and other new-age offerings to ensure it captures emerging opportunities in AI, cloud and automation.
More importantly, Tech Mahindra is undergoing a large-scale organisational transformation, aimed at improving execution efficiency and delivering world-class margins.
While both businesses have lagged in recent years, M&M is working to reposition them as leaders in their respective industries. If execution stays on track, these two subsidiaries could become significant value drivers for the group.
#3 Growth gems: The next big value drivers
M&M isn’t just looking at stabilisation—it’s actively building its next set of value creators. Dubbed ‘Growth Gems’, these are 10 businesses that have been identified for their exceptional potential and strong strategic fit within the Mahindra Group’s long-term vision.
The group has set an ambitious target—a five-fold increase in scale and value for these businesses. Seven of these ‘gems’ are now in the spotlight as M&M works to transform them into major growth engines. These include:
- Mahindra Susten,which is turning into a major renewable energy developer, targeting 7 GWp by FY27 while leveraging its engineering, procurement and construction (EPC) expertise and contributing to the group’s environmental, social, and governance (ESG) goals.
- Mahindra Accelo, a key player in EV components, power solutions and auto recycling, which uses advanced tech like progressive stamping to serve top manufacturers.
- Mahindra Lifespaces, which is expanding in residential and industrial clusters, focusing on sustainable urban development across Mumbai, Bangalore and Pune.
- Mahindra Holidays,which continues to lead in vacation ownership with Club Mahindra, serving 2.81 lakh members across more than 125 resorts in India and abroad.
- Mahindra Logistics,which is strengthening its position in integrated supply-chain solutions, and expanding in contract logistics, last-mile delivery, and freight forwarding.
Weaknesses and risks
M&M’s strong run faces growing challenges. In EVs, it’s still playing catch-up with Tata Motors, which has a solid first-mover advantage.
And with Tesla eyeing the market, competition could get even more intense. Its presence could force established players to rethink their game, from innovation cycles to pricing strategies. If Tesla proves aggressive, M&M may have to cut prices, hike R&D spending, and offer discounts—all of which could squeeze margins.
It’s not just Tesla, though. Other global players such as BYD and Hyundai are also expanding in India, making M&M’s next leg of growth anything but easy.
And remember the tractor business is cyclical—weak monsoons or lower rural income could weigh on volumes.
Valuation check
M&M trades at a price-to-earnings multiple of around 28.5, slightly above its historical average of 24.3. Given its market leadership and strong cash flows, the premium seems justified.
But a lot of optimism is already priced in, meaning upside from here depends on execution.
M&M has maintained aconsistent dividend track record, with payouts increasing to 19% in FY24. Despite the stock’s sharp rally, the dividend yield stands at 1.1% in FY24.
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While M&M continues to generate strong cash flows, its focus on EV expansion and capex in premium SUVs means investors will closely watch whether dividend payouts remain stable or if the company prioritises reinvestment.
Conclusion
M&M’s journey over the next three years will be shaped by its ability to execute across multiple fronts.
The SUV business remains its biggest strength, but competition is intensifying. EVs offer a massive opportunity, yet M&M is playing catch-up. The tractor business provides stability, but cyclical risks persist.
Beyond auto, Mahindra Finance is working to stabilise asset quality, Tech Mahindra is undergoing a transformation, and businesses such as Mahindra Lifespaces, Mahindra Holidays and Mahindra Logistics are expanding steadily.
At current valuations, a lot of optimism is already priced in.
For the stock to deliver meaningful upside from here, M&M needs to execute flawlessly—scaling up EVs, sustaining SUV dominance, and navigating cyclical headwinds in the farm segment.
If it pulls this off, the next three years could see further gains. If not, the stock may take a breather after its stellar run. Either way, the road ahead won’t be dull.
Investors should stay cautious and track execution timelines closely. As always, thorough research is key before making any investment decisions.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
