IGI Logo

Steady performance continues

Mahindra CIE (MACA) once again reported resilient performance in an adverse environment with Q4CY22 EBITDAM at 13% (flat QoQ) despite lower revenue in India and an inflated cost environment in the EU. QoQ basis, India revenue was down 6% vs EU revenue being up 8%, resulting in largely flat consolidated revenue. We believe input commodity cost deflation and lower production QoQ by key OEM customers (e.g. MSIL, BJAUT) resulted in the sequential revenue decline. We believe production recovery at key domestic OEMs, aided by MM’s capacity enhancement and MSIL/TTMT’s new launches, should help domestic revenue scale up from current levels. Thus, with ~200bps gross margin expansion QoQ for domestic operations in Q4CY22, revival in operating leverage should take India EBITDAM towards ~16% levels in the coming quarters. EU operations reported ~100bps QoQ improvement in EBITDAM to 14.5% in an elevated input cost environment. Thus, with power cost, freight cost and input commodity price inflation subsiding, we believe there is scope for EU EBITDAM to move to ~16-17% in the coming quarters, also aided by rising scale. Maintain BUY with a DCF-based target price of Rs466/share, implying ~16x CY24E EPS.

Key takeaways from earnings call and our views:

* MACA continued to grow ahead of domestic OEM growth rate and is confident of the trend continuing in CY23. Its confidence emanates from visibility on key customers (M&M, TTMT, MSIL, etc.) benefiting through new launches or capacity enhancements. In EU too, MACA revenue growth continued to be in excess of industry volume growth and is set to deliver >10% growth vs expected industry growth of ~6-8% in CY23. New plants in Hosur/Rajkot are already in the process of getting operational and will ramp up ahead, thereby adding to revenue. In the EU, transition to EVs would be fully organic in nature based on internal capabilities (currently 30% of order book is from EVs).

* MACA India reported a record EBITDAM at 15.7%, up 70bps QoQ, driven by ~260bps QoQ standalone GM improvement. Thus with revenue scaling back from Q4, we expect EBITDAM to cross 16% in the coming quarter itself. EU EBITDAM improved 100bps QoQ to 14.5%. With power cost declining to ~EUR140/MW in Dec’22 from highs of ~EUR400/MW pre-Sep’22, we believe margin improvement by ~200bps is in the offing. MACA is aiming towards ~18-19% consolidated EBITDAM from current ~13-14% in the next few years led by scale benefits, better productivity/efficiency, rationalisation in power/freight costs and focus on valued-added segments like aluminium forging.

* MACA maintained its CY22 dividend at the same level as in CY21, at Rs2.5/share, and is open to go back to ~25% payout in CY23 while keeping capex/sales ratio at ~5-6% during the year. With plans to take the inorganic route for expansion into automotive plastic parts business, MACA is likely to have a net cash holding of Rs10bn with net worth at Rs66bn by CY24E

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7  

SEBI Registration number is INZ000183631

Above views are of the author and not of the website kindly read disclaimer