Buy CIE Automotive India Ltd for the Target Rs. 463 by Motilal Oswal Financial Services Ltd
Performance marred by weakness in Europe
Ongoing tariff war adds further uncertainty to European demand
* CIEINDIA’s 1QCY25 EBITDA/PAT of INR3.4b/INR2.1b came in ahead of our estimates of INR3.2b/INR1.9b. While Europe demand remained weak and was down 19% YoY, it was still better than our estimate. With EU demand remaining uncertain, management continues to focus on driving growth in India through capacity expansion, deeper customer engagements, and leveraging its existing product and segment diversification.
* We cut our CY25/CY26 EPS estimates by 4%/5% to account for continued demand weakness, especially in Europe. The Indian business is projected to be the primary growth driver for the company even in CY26. CIEINDIA remains focused on sustaining profitability through operational efficiencies. The stock trades at 20x/18.3x CY25E/CY26E consolidated EPS. Reiterate BUY with a TP of INR463 (~21x Dec’26E consolidated EPS).
Weak underlying industry demand dents profitability
* 1Q consolidated revenue declined 6% YoY to INR22.7b, largely due to persistent demand weakness in Europe business. However, revenue was still better than our estimate of INR21.9b.
* Consolidated EBITDA margin remained flat YoY at 14.8% (vs. est. 14.4%).
* Consolidated PBT came in at INR2.7b (above our est. of INR2.5b).
* CIE Automotive has restated its financials in its presentation wherein Bill Forge Mexico is now shifted under Europe business from India business. Hence, segmental comparison of estimates with reported numbers will not reveal the true picture.
* India update: Revenue grew 3% YoY to ~INR14.6b. Overall business was stable, with growth similar to weighted average production growth of underlying segments. It should be noted that a decline in steel prices led to a 3% hit on 1Q revenue. EBITDA margin improved 60bp YoY to 15.7%.
* EU update: Revenue declined 19% YoY to ~INR8b. Sales decline was steeper than the fall in Europe LV production of 7%. US off-road market demand remains weak. EBITDA margin declined 150bp YoY to 13.1% largely due to weak demand. Restructuring activities and temporary lay-offs are ongoing to preserve margins at current levels despite the slowdown
Highlights from the management commentary
* India business: The company has now appointed a business development head, whose role would be to focus on new order generation from anchor customers and to work on synergy wins within different segments in the company. Outlook: Tractor industry continues to see healthy growth and is likely to continue to post 4-5% growth in FY2E. 2Ws are also seeing steady growth. However, PV demand has come off in the recent months. Overall, the Indian auto market is likely to post ~5% growth in FY26E.
* Europe performance update: Management has indicated that Europe demand remains weak and expects the European PV segment to decline 5-7% in CY25. The ongoing tariff war has only added to the current uncertainty in Europe market. Management is working on reducing operational costs to the new utilization levels and maintaining margins at the current levels.
* US tariff impact: The impact of US tariff on India business is negligible as only 3% of its business from India goes to the US – ~INR100m in 1Q. From the Europe business, Metalcastello has ~40% exposure to the US. Similarly, about 40% of Bill Forge Mexico sales go to the US. These sales are attributed to US OEMs, which are assembling vehicles in the US. The indirect impact of this tariff war is a potential slowdown/uncertainty created by supply chain disruption, which is likely to hurt global auto demand in the near term.
Valuation and view
* The Indian business is projected to be the primary growth driver for the company even in CY26. However, the weak outlook for the EU business and Metalcastello is likely to weigh on the overall performance in the near term. Some of the financial attributes unique to the global ancillary player include: being net debt free, having strict capex/inorganic expansion guidelines, generating positive FCF, and improving the return trajectory.
* We cut our CY25/CY26 EPS estimates by 4%/5% to account for persistent demand weakness, especially in Europe. However, CIEINDIA remains focused on sustaining profitability through operational efficiencies. The stock trades at 20x/18.3x CY25E/CY26E consolidated EPS. Reiterate BUY with a TP of INR463 (~21x Dec’26E consolidated EPS).
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