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Buy Mahindra CIE Automotive; target of Rs 279: ICICI Direct

ICICI Direct recommended buy rating on Mahindra CIE Automotive with a target price of Rs 279 in its research report dated July 24, 2017.

July 26, 2017 / 04:14 PM IST
 
 
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ICICI Direct's research report on Mahindra CIE Automotive


Mahindra CIE’s Q2CY17 consolidated net sales were at Rs 1449 crore (up 13.3% YoY) vs. our estimate of Rs 1,532 crore. The revenue is not comparable YoY as it includes integration of Bill Forge (BFL). Revenue from Indian operation (standalone + BFL + gears business) grew 50.6% YoY to Rs 636 crore supported by production growth in UVs, tractors and 2-W. Revenue from European operation declined 2.1% YoY to Rs 894 crore mainly due to currency translation Consolidated EBITDA margins came in at 14.2% (up 248 bps YoY & 81 bps QoQ) vs. our estimate of 13.4% attributable to 1) integration of high margin BFL business (recovered post demonetisation) & 2) yielded benefit of the clean up made in European operations in CY16.  Consolidated PBT was at Rs 123 crore (vs. PAT estimate of Rs 101.6 crore) On a standalone basis, revenues increased 11.1% YoY to Rs 449.5 crore, (vs. estimate of Rs 425 crore). At 9.5%, EBITDA margins declined 33 bps YoY, (up 21 bps QoQ), vs. estimate of 10.4%. Higher other income & exceptional expense (VRS worth Rs 9 crore last year) boosted PAT that was up 56.1% YoY to Rs 17.7 crore BFL’s business has recovered from demonetisation and is likely to support growth. The clean-up in Europe will continue to expand its margins. MCI is also likely to de-bottleneck its capacity thereby resulting in higher vacuum to execute new orders from its customers, going forward


Outlook


MCI has a global footprint with global promoters and is a unique case of valuation considering its massive turnaround possibilities. It has a presence across CV & PV with complementary strengths of dual parents. It is also planning an inorganic expansion via partners/acquisitions and wishes to cater to Japanese OEMs. Its consistent focus on cost rationalisation would improve EBIT margins ~10% & RoCE to ~13% in CY18E. Thus, we continue to value MCI at 12x CY18E EV/EBITDA multiple & maintain our target price of Rs 280 with BUY recommendation.


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first published: Jul 26, 2017 04:12 pm

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