Buy Mahindra CIE Automotive; target of Rs 230: ICICI Direct

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ICICI Direct's research report on Mahindra CIE Automotive

Mahindra CIE Automotive (MCI) reported a subdued Q2CY19 performance. Consolidated sales were at Rs 2,142 crore, dragged by ~12% decline in Indian sales (like-to-like) and flattish Europe business performance. MCI consolidated Aurangabad Electricals (AEL) while reporting Q2CY19 numbers. Consolidated EBITDA was at Rs 269.4 crore, with attendant EBITDA margins at 12.2%, down 80 bps QoQ. Standalone revenues for Q2CY19 came off spectacularly, dropping 16.8% YoY to Rs 541 crore with margins at 10.0%, down 250 bps QoQ. Consequent standalone PAT was at Rs 23.3 crore, down 47% YoY.

Outlook

We expect sales, EBITDA and PAT to grow at a CAGR of 9.4%, 9.5% and 13.9%, respectively, in CY18-20E, with attendant margin improvement in tow. We believe the disappointing performance in Q2CY19 is not indicative of a structural worsening of the company’s prospects. MCI’s healthy return ratios (~14% RoCE) and ~7% FCF yield also provide valuation comfort. We value MCI at Rs 230 i.e. 7.5x EV/EBITDA on CY20E numbers (implied P/E at 13.5x on CY20E; 10% discount to its long period average of ~15x forward P/E). We maintain our BUY rating on the stock.

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