Mahindra & Mahindra surges on strong Q4 show, auto segment leads the charge

ET Intelligence Group: Shares of Mahindra & Mahindra closed 3.4% higher on Tuesday following the auto major's better-than-expected March quarter numbers, aided by record market share in farm equipment and improved share in the automotive segments. The momentum in automotive volumes is likely to sustain in the coming quarters, supported by improving demand, capacity ramp-up and an expanded pipeline of new launches over the next five years. However, tractor volume growth is expected to moderate to mid-single digit after a 24% year-on-year growth in FY26 amid high base in the previous year and an expectation of below-normal monsoon season. Given these factors, the stock may remain range bound in the short-medium term.

While the company was able to expand operating margin before depreciation and tax (Ebitda margin) by nearly 60 basis point (bps) year-on-year, it reported a sequential drop of 80 bps reflecting input cost pressure. Material costs relative to revenue elevated to 71.1% in the March 2026 quarter from 66.2% a quarter ago. The PBIT margin for standalone automotive business improved to 10.9% from 10.4% while the farm equipment segment's margin contracted to 19.4% from 20.2% over the same period. The company has raised product prices to offset the cost pressure. During an analyst call after results, the management indicated that there was still room to roll prices close to pre-September levels, which had fallen sharply after the GST revision. A further price increase will depend upon the trend in input costs.

According to the management, while rising fuel prices may dampen demand for internal combustion engine (ICE) vehicles, it may be offset to some extent by a shift toward electric vehicles (EV). However, this may affect profitability as the EV business operates at roughly half the PBIT margin of the ICE segment. If the fuel prices continue to increase, the high margin business ICE could suffer affecting overall profitability, though volume might not be impacted as much.

In the farm equipment segment, which includes tractors and other agricultural equipment, the company has been displaying a different margin trend compared with the overall sector. During the two years to FY25, it had maintained the PBIT margin in a tight range of 20-21% when the rest of the sector had reported a sharp contraction. However, since the September'25 quarter, even though the sector level margin has gradually marched past 30%, Mahindra continued to report margin in the range of 20.4-21.2% It means any major improvement on the margin front may not come easily.