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All-round beat, expect improvement to continue...

…on new orders, recovery in India 2Ws/Tractors, and better semiconductor supplies

MACA’s 1QCY22 performance was an all-round beat, led by strong revenue and profitability in the EU and robust margin in India. Improving supplyside issues, new orders, and the possibility of an improvement in demand for 2Ws and Tractors in India, coupled with a pass-through of cost, will lead to a sustained improvement in performance over the next 12 months.

We raise our CY22/CY23 EPS estimate by 29%/12% to account for an improvement in revenue and EBITDA margin in India and the EU business. We maintain our Buy rating with a TP of INR280/share (13x Mar’24E EPS).

Strong margin recovery in the India and EU business

Consolidated revenue grew 18% YoY to INR25.9b (est. INR22.8b), EBITDA rose 3.5% to INR3b (est. INR2.24b), and adjusted PAT increased by 6% to INR1.6b (est. INR0.9b) in 1QCY22.

Revenue from the India business grew 15% YoY to ~INR12.8b (est. ~INR12b), driven by pass-through of RM cost (~10% benefit), strong performance in its Mexico business, and robust volumes in PVs and CVs. India EBITDA margin stood at 13.4% (est. 11%, +280bp QoQ/-30bp YoY), driven by RM cost pass-through and operating leverage.

Revenue from the EU business grew 22% YoY to ~INR13b (est. ~INR10.8b). The same at a constant forex rate and excluding cost pass-through grew by ~10% YoY, led by strong growth at Metalcastello (30-35% YoY growth). EBITDA margin stood at 9.6% (8.5% higher than our estimate, +200bp QoQ/- 290bp YoY), driven by partial pass-through of higher energy prices and operating leverage.

Consolidated net debt rose by INR3b QoQ to ~INR11b

Highlights from the management commentary

India business: Despite a weak growth in the 2W and Tractor segments in 1QCY22, all verticals are showing good performance and positive expectations. As 2Ws and Tractors recover, MACA will benefit further. The Mexico business is now operating at near peak capacity (at a monthly revenue run-rate of USD2.5m). It has onboarded new customers, with a confirmed order book, and is adding capacity. This will take its peak monthly revenue to USD4m.

The EU business will benefit from an improvement in semiconductor supply and the geopolitical situation. Truck makers are indicating a full pipeline for the next 12 months. The entire capacity of Metalcastello (the Off-Highway Gears business) has been booked. Given its strong order book, it is creating additional capacity.

Valuation and view

MACA’s growth story is on track, driven by its organic initiatives (new products and customers). This, coupled with its cost-cutting initiatives in 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 13.8x/10.7x CY22E/CY23E consolidated EPS. We maintain our Buy rating with a TP of ~INR280/share (13x Mar’24E consolidated EPS).

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