IGI Logo

Margins impacted by RM Cost and operating deleverage

New order wins in EVs/hybrids; Focus on energy cost pass on to customers

MACA’s weak performance in 4QCY21 was reflection of high RM/energy cost and operating deleverage in both geographies. It is negotiating with customers to pass on hyper inflation in energy prices. There is good progress on order wins in EVs/hybrids in both geos.

We cut our CY22E EPS estimates by 3.5% to account for margin pressures across both geographies and maintain CY23E EPS estimates. Maintain Buy with TP of INR267 (13X Dec-23 EPS).

Margin pressure across geographies

Consolidated revenue grew 5% YoY to INR20.6b (in line) in 4QCY21, while EBITDA/adjusted PAT fell 18%/20% to INR2b/INR893m. Revenue/EBITDA/adjusted PAT grew 39%/2.1x/4.9x in CY21

EBITDA declined by 18% YoY to ~INR2b (est. INR2.6b). EBITDA margin stood at 9.8% (est. 12.7%). EBITDA margin was impacted by RM cost (2pp) and operating deleverage. Adjusted PAT fell 20% YoY to INR892m (est. INR1.1b).

India revenue grew 11% YoY to ~INR11.4b (est. ~INR11.2b), but declined 5% YoY on constant RM basis. India EBITDA margin stood at 10.6% (est. 13.5%), impacting by RM cost (200bp) and op. deleverage.

EU business revenue fell ~1% YoY to ~INR9.2b (est. ~INR9.2b), but declined 19% on constant RM basis. Reported EBITDA margin stood at 7.6% (est. 11.5%) hurt by higher RM/energy cost and op. deleverage

The board declared a dividend of INR2.5/share for CY21.

Consolidated net debt fell to INR7.8b (v/s INR12.8b as of Dec’20).

Consolidated FCFF improved to INR5.7b (v/s INR2.4b in CY20) due to improvement in cash flow from operations.

Highlights from the management commentary

Growth forecast | India business: PVs and CVs are expected to grow on strong demand, subject to semiconductor availability, while Tractor and 2W sales are expected to remain sluggish. The Europe business is expected to grow on a low base. With some pent-up demand in the long-term, growth will be in line with broader GDP growth

Europe CV business: It is seeing good demand for CVs in Europe. Though Germany is lagging, it is expected to come back on stream in 2HCY22. Currently CVs contribute 39% to Europe’s revenue.

Capex for CY22 will be 5% of total revenue and is India focused (~80%).

Valuation and view

MACA’s growth story is on track, driven by its organic initiatives (new products/customers). This, coupled with cost-cutting initiatives in both India and the EU, will drive margin expansion

Any significant order wins, or growth in the EV portfolio, can act as a rerating factor. The stock trades at 11.6x/9.5x CY22E/CY23E consolidated EPS. We have lowered our target multiple to 13x (from 15x earlier) as recovery in capital efficiency is slower than expected. We maintain our Buy rating with a TP of ~INR267/share (13x Dec’23E consolidated EPS).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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