ICICI Direct is bullish on Mahindra
CIE Automotive has recommended buy rating on the stock with a target price of
Rs 290 in its research report dated October 19, 2018.
Mahindra CIE’s (MCI) consolidated revenues grew ~22% YoY to Rs 1933
crore supported by new order wins, organic volume growth across businesses,
higher realisation & positive exchange rate. EBITDA margins expanded 29 bps
YoY to 13.5% driven by Indian operations Revenues from India [standalone + Bill
Forge (BFL) + gears business] were at Rs 815 crore, up ~20% YoY (of which ~9%
is constituted by its top three customers, ~4% from higher realisation &
~7% from new clients). EBITDA margins expanded 78 bps YoY to 15.2% due to cost
efficiency & partly due to forex gain of Rs 9 crore in Bill Forge Mexico
Revenue from Europe grew ~23% YoY to Rs 1126 crore. The growth mix was at: 10%
from a positive exchange rate while the balance is a mix of new orders, higher
realisation & organic growth. The stock reduction due to August holidays
impacted the EBITDA margin, which contracted 16 bps YoY & 183 bps QoQ to
12.2% The board has approved the restructuring plan – 1) Merger of Bill Forge
with itself and 2) transfer of investment in Mahindra Forging Europe to CIE
Galfor. Further, MCI has approved the proposal to close business of Stokes
Group within the next two years. Stokes reported sales & net loss at Rs 94 crore
& Rs 9 crore, respectively for CY17, negative net worth & is unable to
generate cash. Hence, to facilitate closure, the board has approved infusion of
equity of ~Rs 120 crore in Stokes.
Outlook
MCI is a multi-locational & multi-technology business with
engineering capabilities & manufacturing facilities of its own and its
subsidiaries globally. Its consistent focus on cost rationalisation would
improve EBIT margins to ~11% & RoCE to ~17% in CY19E. We value MCI at 9x
CY19E EV/EBITDA multiple thereby arriving at target of Rs 290 with BUY rating.
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