M&M’s Scorpio-N sees robust demand; shares top Nifty gainer

“To compare with the recent model launches in the sport utility vehicle (SUV) sector, Scorpio-N’s booking has surpassed the initial booking number of M&M’s XUV700 and Maruti Suzuki India’s Brezza,” point out analysts at Prabhudas Lilladher in a report on 31 July.

Such strong demand would boost M&M’s volumes and accordingly, analysts at Prabhudas Lilladher have raised M&M’s domestic passenger vehicle volume estimates by about 3%/2% and earnings per share by 1% each for FY23/24.

M&M aims to deliver over 20,000 units of this vehicle by December. This remains to be seen as supply chain constraints are far from over though the situation is getting better.

The turnaround in M&M’s automotive segment on account of new launches and improving margins seem to have pleased investors. After all, the shares have surged by 48% in the calendar year 2022 so far versus 17.8% appreciation in the Nifty Auto index.

Further, with softening costs of commodities such as steel and aluminium, margins can be expected to rise. But this could fully play out December quarter (Q3FY22) onwards as the benefit comes with a lag.

As such, the automaker’s margin performance in Q1FY23 would be key monitorable. Also, the management’s commentary on chip shortage and its electric vehicle plans would require closer tracking. M&M is likely to announce its Q1 results on 5 August.

“Though we are positively surprised with the unrivalled bookings that Scorpio-N has received, we believe there could be duplication of these bookings, cancellations going ahead (currently 10-15% cancellation rate), and cannibalization of M&M’s other offerings like Scorpio Classic and XUV700,” added the Prabhudas Lilladher report.

Meanwhile, the Nifty Auto index remained the biggest gainer among the sectoral indices on Monday, rising by almost 2.7%. Automakers are set to announce their July sales numbers early this week. “We expect volumes to grow by a strong 43-69% year-on-year for Ashok Leyland/Tata Motors/Eicher Motors, rise 13% for M&M, grow 3-4% for Hero MotoCorp/Maruti Suzuki India/TVS Motor Co., but decline 10% for Bajaj Auto,” said analysts from Jefferies India in a report on 28 July.

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