Buy Mahindra CIE Automotive, target price Rs 360: Motilal Oswal

Motilal Oswal has buy call on Mahindra CIE Automotive with a target price of Rs 360. The current market price of Mahindra CIE Automotive is Rs 323.85.

Mahindra CIE Automotive Ltd., incorporated in the year 1999, is a Mid Cap company (having a market cap of Rs 12217.81 Crore) operating in Auto Ancillaries sector.

Mahindra CIE Automotive Ltd. key Products/Revenue Segments include Automotive Accessories, Other Operating Revenue and Sale of services for the year ending 31-Dec-2021.


Financials
For the quarter ended 30-09-2022, the company reported a Consolidated Total Income of Rs 2736.95 Crore, down -.22 % from last quarter Total Income of Rs 2742.86 Crore and up 30.45 % from last year same quarter Total Income of Rs 2098.09 Crore. Company reported net profit after tax of Rs 171.07 Crore in latest quarter.


Investment Rationale
MACA’s has increased its focus on investing in profitable orders with margins of >15% and on the domestic market. India is expected to be the key growth driver, led by: 1) value-added products (machined castings, higher grade magnets, complex gears, etc.); 2) exports; and 3) new products and customers. EBITDA margin expansion is likely to be driven by: 1) higher valueadded products, 2) optimization of product process, and 3) operating leverage.
While demand is expected to remain uncertain in Europe, the order schedules have remained intact so far. On the other hand, MACA’s board has approved to sell part of its German Forging operation (Mahindra Forgings Europe AG- MFE).

The brokerage believes the sale is a step in the right direction as it should help the company improve its consolidated financials (MFE had incurred cumulative loss of EUR22.6m over CY18-21) and strengthen its focus on growth in the light EV market. It believes MACA’s growth story is on track, led by its organic initiatives (new products/customers) and M&A focus. Under CIE’s parentage, MACA has been able to improve its efficiencies, cut costs, and improve profitability. The stock trades at 13.6x/11.3x CY23E/CY24E consolidated EPS. The brokerage maintains Buy rating with a TP of INR360.

Promoter/FII Holdings
Promoters held 74.96 per cent stake in the company as of September 2022 quarters while FIIs owned 0 per cent and DIIs 7.66 per cent.