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Mahindra CIE Automotive - Strong performance amid supply chain issues - ICICI Securities

Posted On: 2021-10-18 12:07:53 (Time Zone: IST)


Mahindra CIE Automotive's (MACA) reported stellar Q3CY21 results driven by strong growth in India performance (revenues up 22.3% QoQ) even as Europe business was impacted by seasonality (revenues down ~15% QoQ). Consolidated sales grew 21% YoY / 2% QoQ to ~Rs20bn while margins remained resilient at ~14% (down 5bps QoQ). MACA continues to deliver on its targets, which is well reflected in FCF improvement (CY20/CY21E: ~Rs2bn/5.2bn respectively). We expect the company to clock cumulative FCF of ~Rs13bn over CY21-CY22E. We believe MACA's PBT would continue to pivot towards India business (CY17: 45%, CY22E: 58%), which would aid valuations. Stock remains attractive (~6%/8% FCF yield for CY21/22E). Maintain BUY.

  • Key highlights of the quarter: Consolidated revenues rose 23% YoY / 2% QoQ while EBITDA margin jumped 291bps YoY to ~12.8% from the strong performance in India (up 22.3% QoQ) propelled by M&HCV volume pick-up, despite semiconductor shortage impact. Europe business (down 14.5% QoQ) suffered from holiday seasonality and semiconductor chip shortages even as covid impact was minimal. Consolidated PBT rose ~91% YoY to ~Rs1.8bn. Revenues from AEL and Bill Forge for Q3 were similar at Rs2.4bn (AEL: 9MCY21 - Rs7bn).
  • Key takeaways from earnings call: Management indicated: a) demand from North America is strong; MACA has won EUR20mn annual contract for EV transmission and driveline components (start from CY22) and similar contract for India business for both PVs and 2Ws; b) in EU, sales were up 11% YoY (Eur terms) and improved demand for CVs is likely to lead to higher than industry growth; Metalcastello business is performing well; MACA will focus on converting its existing forging capacity towards EV products (e.g. via Aluminium technology) in Europe; c) capex for CY21 is expected to be Rs4.5bn, of which Rs4bn is already spent towards new plant in Hosur and doubling of capacity at Bill Forge, Mexico; and d) Q3 exports stood at 11-13% of sales and are expected to reach 20% in CY22.
  • Maintain BUY: MACA is a well-diversified MNC play with dominant India contribution (~58% as PBT share in CY22E, up 11% since CY19) as the company continues to beat its targets amid strong focus on EV components, which is likely to aid margin improvement. We tweak our earnings estimates by ~1%/4% for CY21E/CY22E, respectively. We maintain our target multiple at 16x CY22E EPS of Rs21. Maintain BUY with a revised target price of Rs326/share (earlier: Rs312).

Shares of Mahindra CIE Automotive Limited was last trading in BSE at Rs. 250.85 as compared to the previous close of Rs. 252.00. The total number of shares traded during the day was 43981 in over 1508 trades.

The stock hit an intraday high of Rs. 261.95 and intraday low of 248.55. The net turnover during the day was Rs. 11247325.00.


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