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Steady performance; investment thesis unchanged…

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

* CY20 consolidated revenue mix – Europe 52%, India 48%

* Forging is ~63% of consolidated sales (89% in Europe). India mix is more diversified; includes 25% from aluminium, 18%- stampings & 11%- castings

* In India it derives 40%, 32%, 16%, 5% of sales from PV, 2-W, tractors, M&HCV, respectively

* In Europe it derives 48%, 42%, 10% of sales from PV, MHCV, off highway, respectively

Q3CY21 Results: MCI posted decent Q3CY21 results.

* Consolidated net sales rose 2.4% QoQ to | 2,091 crore

* EBITDA margins were flattish sequentially at 12.8%

* PAT was 22.2% QoQ to | 166 crore, aided by lower effective tax rate

What should investors do? The stock price has grown at ~5% CAGR over the past five years (from ~| 190 levels in October 16), slightly outperforming Nifty Auto index.

* We retain BUY on expected margin improvement & inexpensive valuations.

Target Price and Valuation: We introduce CY23E numbers; value MCI at 10x average CY22E-CY23E EV/EBITDA for revised target of | 330 (earlier target: | 290)

Key triggers for future price performance:

* We expect CY20-23E net sales CAGR of 16.7% led by India business

* Higher utilisation, efficiency efforts to aid margin uptick to 13.5% (CY23E)

* CY23E EPS seen at ~| 18/share; RoCE to improve to ~12% by CY22E

* CY23E CFO, FCF yield seen at 12%, 7%, respectively, with net debt free b/s

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 | 275

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