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Steady growth prospects, EV immune products in focus

About the stock:Mahindra CIE (MCI), part of the Spain-based CIE Automotive Group, is a multi-technology, multi-product automotive component supplier.

* CY21 consolidated revenue mix – Europe 49%, India 51%

* Forging is ~59% of consolidated sales (86% in Europe). India mix is more diversified; includes 22% from aluminium, 21%- stampings & 12%- castings

* In India it derives 37%, 33%, 16%, 8% of sales from PV, 2-W, tractors, M&HCV, respectively

* In Europe it derives 36%, 39%, 9% of sales from PV, MHCV, off highway, respectively

Q4CY21 Results: MCI reported muted Q4CY21 results.

* Consolidated net sales came in at | 2,064 crore, down 1.3% QoQ

* EBITDA margins were at 9.8%, down 300 bps QoQ

* PAT was down 52% QoQ to | 80 crore

What should investors do? MCI’s stock price has de-grown at ~1% CAGR in past five years (~| 200 levels in February 2017), underperforming the Nifty Auto index.

* We retain BUY on steady growth prospects & inexpensive valuations.

Target Price and Valuation: We value MCI at 9x average CY22-23E EV/EBITDA for revised target of | 245 (earlier target price: | 330)

Key triggers for future price performance:

* On the back of pent up demand in current financial year (CY22E) and limited long term growth prospects at European operations, we expect sales at MCI to grow at a CAGR of 5.8% over CY21-23E, led by growth in India business

* Efficiency efforts to report margin uptick to 11.6% by CY23E with CY23E EPS seen at ~| 15.3/share with consequent RoCE at ~10% by CY23E

* Constant effort to de-risk base business amid global thrust on electrification with order book gaining traction in EV specific as well as EV neutral products

Alternate Stock Idea: Besides MCI, in our ancillary coverage, we like Apollo Tyres.

* India CV revival beneficiary focused on debt reduction, higher return ratios

* BUY with target price of | 270

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