Mahindra & Mahindra pips Tata Motors in market cap rankings

There is finally some good news coming for the flagship of Anand Mahindra group. Mahindra & Mahindra (M&M) has become the second most valuable automobile company in India in terms of market capitalisation. Of course, Maruti Suzuki still leads the market cap sweepstakes at Rs2.67 trillion. However, M&M at Rs1.62 trillion has got decisively past Tata Motors at Rs1.47 trillion. Even if one were to add the market cap of Tata Motors DVR, it would still only amount to Rs1.59 trillion. M&M has clearly gone ahead in the value race.

On 09th September, the stock of M&M touched an intraday high of Rs1,366. However, it did correct to close near to the Rs1,302 mark as auto stocks came under pressure in the second half of the day. But M&M has been among the top performers in the auto space in terms of stock market returns. The company has a market cap of Rs1.62 trillion and a free float market cap of Rs1.25 trillion as of the close of 09th September. The stock is still available at a historic P/E ratio of 29.8 times earnings, so projected P/E should be much better.

The dichotomy got accentuated in the last few months. If you consider the last 3 month time frame, the market price of M&M has appreciated by 27% while the price of Tata Motors has gone up by just about 2%. During this period, the Sensex has rallied by 8%, so clearly Tata Motors has not only underperformed the Sensex but has also substantially underperformed Mahindra & Mahindra. While M&M has always had leadership in the tractors space, its recent surge in demand for its newly launched cars has helped.

Both the companies are highly diversified automotive plays. For instance, M&M is engaged in the automotive, farm equipment and truck and bus segments. On the other hand, Tata Motors is into the manufacture of passenger cars, trucks, vans, coaches, buses, luxury cars, sports cars, construction equipment. While M&M is still predominantly an India centric auto business, the auto business of Tata Motors is predominantly global as the majority of its sales numbers comes from Jaguar Land Rover (JLR), a global leader in luxury cars.

M&M also got a leg up from the early trends coming from festive sales. Both OEMs and dealers have confirmed that festive-season sales covering Onam and Ganesh Chaturthi had been extremely positive for the passenger vehicle (PV) segment. Most of the brokerages are very positive on M&M numbers in the coming fiscal year FY23, Volume growth in PV segment is expected to touch 26% in FY23, largely led by new launches by M&M. In addition, the growth is expected to be 20% for commercial vehicles and 3% for tractors.

Most analysts are expecting M&M to maintain market share in the future as well. Tractor volumes may be tepid, but the leadership position should help in that case. On the other hand, analysts do see major headwinds for Tata Motors, especially for the JLR business, given the recessionary concerns in the key markets of the US and Europe. In addition, the COVID driven slowdown in China is also likely to be a major constraint for JLR. However, Tata Motors is expected to do well on the MHCV and the CV segment.

For now, it looks like the India-centric approach of M&M appears to be paying rich dividends. Even global portfolio investors are preferring the India centric stories compared to the globally driven stories. Investors want domestic stability rather than global vulnerability. That is where M&M is scoring a lot of brownie points. For now, it looks like M&M is laughing all the way to the valuation bank. That situation looks set to continue, at least for the foreseeable future.