Success in EV, better margins may make M&M’s drive pleasant

Market


M&M unveiled its electric sport utility vehicle (SUV), XUV400. Its price will be announced in January 2023 and deliveries will begin by the end of that month.

Tata Motors holds the largest market share in electric passenger vehicles (e-PV), but M&M is emerging as a strong competitor. Last week, M&M unveiled its electric sport utility vehicle (SUV), XUV400. Its price will be announced in January 2023 and deliveries will begin by the end of that month.

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M&M also hosted an EV day event on Monday where it said it has invested 600 crore to develop XUV400. It plans to invest 10,000 crore till FY27 to enhance its EV portfolio. The automaker aims to launch five EVs through its two brands, XUV and BE.

M&M reiterated its plans to achieve 20-30% electrification in its SUV portfolio by FY27. Analysts from Nomura Financial Advisory and Securities (India) maintain that in the current taxation regime, the large SUV segment is the sweet spot to launch EVs because of the wide GST differential between EVs (5%) and ICEs (50%). Even so, one primary constraint for M&M to produce EVs is the availability of battery cells, which are being imported.

The company’s EV strategy is encouraging. However, it remains to be seen how M&M’s return ratios pan out given high investments when the automotive segment’s Ebit margin is in single digits. Also, the outlook for the high-margin tractor segment is muted.

“Currently, we are not assigning any value to EVCo, as it doesn’t have any material presence in e-PV segment. However, the success of XUV400 along with market share gains can re-rate the (M&M) stock,” said a report by Prabhudas Lilladher. EVCo is M&M’s EV subsidiary.

For now, investors seem to be factoring in a brighter picture on the back of softening commodity costs and a strong order book. M&M’s shares have risen by nearly 61% in FY23 so far, compared to Nifty Auto index’s 25% gain. Investors are also excited about the all-new Scorpio-N, deliveries for which will start towards the end of September. Production ramp-up is also crucial to meet demand while volume growth and market share gains are key monitorables. Delays in deliveries or higher cancellation rates could dampen enthusiasm.

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