Published on 17/08/2020 11:09:36 AM | Source: Motilal Oswal Financial Services Ltd

Update On Mahindra CIE Ltd By Motilal Oswal

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Above est.; Sharp reduction in other expenses drives EBITDA beat; lower depreciation restricts loss

* 2QCY20 consol revenues declined ~65.7% to ~INR7.35b (est.: ~INR6.8b).

* EBITDA loss stood at ~INR963m (v/s est. loss of INR1.7b). EBITDA loss was lower than estimated owing to a sharp reduction in other expenses (~50% QoQ reduction).

* Change in the method of calculating depreciation to the unit-of-production method (from the straight-line method) resulted in decline in the consol. depreciation amount by INR357m. Moreover, reported loss was restricted to ~INR1.29b (v/s est. loss of ~INR1.8b).

* The performance of the India business, which saw revenue decline of ~72% YoY to ~INR2.65b, was in line with our est. (~INR2.7b). PBIT loss for the India business was lower than estimated at INR621m (v/s est. loss of INR1260m), driven by lower other expenses and lower depreciation.

* The performance of the EU business, which saw revenue decline of ~60% YoY to ~INR4.7b, was above est. (~INR4.1b). PBIT loss for the EU business stood at INR682m (v/s est. loss of INR1181m).

* Restatement in 1QCY20: Management changed the functionary currency of Bill Forge’s Mexican operations from MXN to USD (effective from 1st January 2020). This resulted in the reversal of forex loss of INR418m in 1QCY20 due to the restatement of a loan taken by the subsidiary in USD from the CIE Automotive group company.


Key highlights from the presentations:

* April and May were heavily affected by the lockdown, resulting in largely negative EBITDA during this period. June saw positive EBIT.

* Net debt increased to ~INR14.5b in CY20, from ~INR11.5b in CY19, due to the impact of forex fluctuation of INR840m and the IndAS16 impact of ~INR2.5b.

* The company is focusing on controlling capex (scrutinizing every new project and investing only if it meets the strict profitability threshold), reducing cost (incl. labor), and restructuring at Metalcastello and MFE.

* EU Light Vehicles forecast ‒ IHS Global forecasts Passenger Vehicle production to decline by 25% in CY20 v/s CY19; however it would see a strong CAGR of 5.3% over CY20–25.

* EU MHCV forecast ‒ IHS Global forecasts Europe (Western + Eastern) MHCV sales to decline by at least 22.1% in CY20; however, production is forecast to see a 7.1% CAGR over CY20–25.  Based on our current estimates, the stock trades at 12.5x CY21E consol. EPS and 0.9x P/B.


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