Mahindra CIE's (MACA) reported strong beat with EBITDA margin coming in at 11.5% vs our estimate of ~10%, down by a mere ~150bps YoY, with gross margin largely flat YoY despite input cost adversities. Consolidated revenues were up 18% YoY, driven by 15%/20% YoY growth in India/EU sales. Half of the growth in EU was driven by steel cost pass-through while India growth was led by growth in PVs/CVs and metal inflation. Power cost escalation impacted EU margin by ~200bps YoY and MACA is trying to get it included under the pass-on clause. We expect the company to deliver mean FCF of ~Rs5bn p.a. in CY22E-CY23E. With RoE improving to ~14% by CY23E (~8% in CY21), ~7% FCF yield, 2% dividend yield and lean balance sheet, we believe MACA is an attractive BUY. Maintain BUY on the stock and value it on DCF, with a target price of Rs296/share (earlier: Rs287), implying ~14x CY23E EPS, keeping CY22/CY23E estimates unchanged.
- Key highlights of the quarter: Revenues were up 18% YoY (25% QoQ) while EBITDA margin shrunk by only 163bps YoY to 11.5%, with flat gross margin and elevated energy costs (~20% impact on other expenses) despite savings from employee VRS. Strong performance in India (up 15% YoY) was propelled by M&HCV/PV volume pick-up, despite semiconductor shortage amidst weak 2W/tractor demand. EU business was up 20% YoY due to strong demand from Metalcastello and steel inflation pass-through.
- Key takeaways from earnings call: a) EU revenues are up from historical high performance of Metalcastello (up 35% YoY) and Bill Forge revenues at EUR2.5mn per month (EUR4mn-5mn peak monthly revenues are expected once production normalises, or on securing of new orders); b) in EU, 70-75% capacity utilisation with Metalcastello lines fully booked; for India business, the gear segment orderbook and capacity is fully booked; c) capex for CY22 is expected at 5-6% of sales as cashflows continue to be robust amidst supply constraints; and d) steel inflation contributed 12% of the 20% YoY growth in EU revenues; MACA was able to pass through only 25-30% of energy cost inflation and targets to achieve a stabilised ~15% EBITDA margin at a consolidated level; d) company in no a hurry to do M&A.
- Improving cashflows to drive valuation multiples; BUY: MACA is a well-diversified MNC play with dominant India contribution (~55% PBT share in CY21). With parent CIE's capability to service global EV OEMs, we believe it is a matter of time MACA would also start making EV components for EU PV market. The stock is trading at ~7% forward FCF yield with a lean balance sheet. We maintain BUY on MACA at Rs296/share (earlier: Rs287) based on DCF, implying ~14x CY23E P/E.
Shares of Mahindra CIE Automotive Limited was last trading in BSE at Rs. 223.50 as compared to the previous close of Rs. 199.05. The total number of shares traded during the day was 719860 in over 18074 trades.
The stock hit an intraday high of Rs. 234.80 and intraday low of 214.50. The net turnover during the day was Rs. 162430156.00. |
