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Inline; India business continues to outperform; EU hurt by energy cost

* MACA’s overall performance in 3QCY22 was in line. The India business outperformed the European business, led by strong domestic demand. Given the moderation in commodity costs and partial pass-through of energy cost, we expect margin in both geographies to improve from here on.

* We change our CY22/CY23 estimate by -1%/+4% to reflect strong PV demand for its key customers in India and adverse forex impact. We maintain our Buy rating with a TP of INR360 (~13x Dec’24E consolidated EPS).

Energy costs headwinds impacts the EU business

* Consolidated revenue/EBITDA/adjusted PAT grew 30%/18%/18% YoY to INR27.2b/INR3.2b/INR1.7b (est. INR27.1b/INR3.2b/INR1.7b) in 3QCY22. Revenue/EBITDA/adjusted PAT rose 27%/11%/20% YoY in 9MCY22.

* EBITDA margin stood at 11.6% (est. 11.9%), led by lower RM and employee costs sequentially.

* Revenue in the India business grew 34% YoY to ~INR15.3b (est. ~INR14.2b), partly aided by RM cost pass-through benefits (~6%). India EBITDA margin grew 120bp YoY to 13.4% (est. 14%), led by RM cost pass-through and operating leverage. India EBITDA grew 32% YoY to ~INR2.05b (est. INR2b).

* Revenue from the EU business came in below our estimate of ~INR12.8b, but rose 25% YoY (up 39% YoY in EUR terms) to ~INR11.9b. There was an adverse currency impact of 11% and commodity cost pass-through (up 15%). EBITDA margin fell 260bp YoY, but grew 20bp QoQ to 9.3% (est. 9.5%), impacted adversely by energy cost inflation.

* Consolidated net debt declined by INR1.2b QoQ to ~INR7.5b.

Highlights from the management commentary

* It aims to grow the India business by ~10%, ahead of the served industry growth, v/s its earlier outperformance target of 5-10%.

* For the EU, overall market demand and order book remains strong, but macro uncertainty remains. It is seeing strong demand across its businesses in PVs, CVs, and the Off-highway segment.

* For energy cost hyperinflation in the EU, it has an agreement in place with most customers for pass-through of 60-70% of the cost inflation. For staff cost inflation, it is focused on diluting the impact through enhanced efficiencies and business growth.

Valuation and view

* MACA’s growth story is on track, driven by its organic initiatives (new products and customers in the India business). This, coupled with costcutting measures in both India and the EU, will drive margin expansion going forward.

* Any significant order wins or growth in the EV portfolio can drive a rerating. The stock trades at 16.9x/13.5x CY22E/CY23E consolidated EPS. We maintain our Buy rating with a TP of INR360 (~13x Dec’24E consolidated EPS).

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