UBS downgrades Mahindra & Mahindra stock on valuation concerns By Investing.com

On Friday, UBS downgraded shares of Mahindra & Mahindra Ltd (MM:IN) (OTC: MAHMF) stock, adjusting the rating from Buy to Neutral, despite increasing the price target to INR3,000.00 from INR1,850.00.

The revision follows a period of significant growth for the Indian automaker, which has seen its share price soar, leading to a valuation that UBS now considers stretched.

The company, known for its sports utility vehicles (SUVs), tractors, and light commercial vehicles (LCVs), has been experiencing industry-leading growth volumes. UBS acknowledges the company’s market share gains, propelled by recent product launches. However, the firm anticipates that these gains will continue at a decelerated pace.

UBS’s new price target represents a 7% increase over the current share price. The firm’s reassessment is partly due to Mahindra & Mahindra’s auto business trading more than four standard deviations above the five-year average. This surge in stock price has prompted UBS to adopt a more cautious stance on the company’s market valuation.

The company’s strategy towards emission compliance is heavily reliant on electric vehicles (EVs). Currently, the EV off-take is approximately 2.5% of the industry and close to 2% of Mahindra & Mahindra’s SUV sales. UBS expresses concern over the company’s ambitious EV-only approach, considering the modest adoption rate.

According to the management of Mahindra & Mahindra, a 20-30% adoption of EVs is necessary by 2027 to meet the proposed corporate average fuel economy (CAFÉ) norms.

UBS’s position reflects a careful analysis of Mahindra & Mahindra’s current market performance and future compliance challenges. The firm’s adjustment of the price target upwards, despite the downgrade, indicates a recognition of the company’s solid growth but tempered by the risks associated with its EV strategy and the recent rapid rise in its stock price.

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