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Weak growth across geographies dent performance

EU light-vehicle production to decline ~3% YoY in CY24E

* CIEINDIA reported a muted performance in 4QCY23 due to lower-thanestimated growth in both India and EU. The demand outlook for EU remains weak as the production of light-vehicles is expected to decline ~3% YoY in CY24, along with an anticipation of muted growth in Metalcastello for the next few quarters.

* We cut our CY24E/CY25E EPS by 4%/3% to factor in weakness in the underlying markets. Reiterate BUY with a TP of INR540 (based on ~18x CY25E consol. EPS).

Margins below est. both in India and EU

* 4QCY23 consol. revenue remained flat YoY at ~INR22.4b (vs. est. INR24.6b), due to weaker growth in both geographies. India grew 6% YoY (vs. est. growth of 11%), while EU declined 11% YoY (vs. est. flat growth YoY). EBITDA stood at ~INR3.3b (vs. est. INR3.8b), up 12% YoY. EBITDA margins stood at 14.6% (vs. est. 15.5%). Adj. PAT stood at INR1.8b (vs. est. INR2.2b), up 6% YoY. CY23 consol. revenue/EBITDA/PAT grew 6%/21%/17% YoY.

* India business performance: Revenue grew 6% YoY to ~INR14.8b (vs. est. ~INR16b). India EBITDA margin stood at 14.7% (vs. est. 15.9 %). India business growth was largely in line with the underlying weighted average industry growth of 4%.

* EU business performance: Revenue declined 11% YoY to ~INR7.6b (vs. est. ~INR8.6b). 4QCY22 had higher other operating revenues accounted for energy cost compensation. EBITDA margins stood at 14.5% (vs. est. 15.6%). Market slowdown in EU operations and off-highway market drop in the US impacted the Metalcastello performance.

* The company declared a final dividend of INR5/share for CY23 (vs. INR2.5/share for CY22).

* FCFF for CY23 stood at INR8.7b (vs. INR6.75b in CY22) due to improved cash flow operations at INR13.8b (vs. INR11.2b in CY22). Capex stood at INR5.1b (vs. INR4.4b in CY22).

Highlights from the management commentary

* India revenue growth was largely in line with the weighted average underlying industry growth. 4Q growth was affected by delay in many EV projects by the customers and a softness in the India EV market. However, the company has maintained its guidance to outperform the underlying weighted average industry growth by 5%.

* Export contribution from India stood at 14% (vs. 11% in CY22). These orders are new opportunities mostly for steel castings and gears.

* EU outlook challenging: EU light-vehicle market is expected to remain stagnant for the next 4-5 years. Light-vehicle production would decline ~3% YoY in CY24. The pace of electrification in EU is also expected to slow down (12% electrification in light-vehicle market in CY23).

* Metalcastello- Revenue declined 6% YoY in CY23 due to weakness in the US offhighway market. With the upcoming elections in the US at the end of CY24 and a slowdown in infrastructure projects, Metalcastello growth is expected to remain muted for the next 2-3 quarters.

Valuation and view

* CIEINDIA’s growth story is on track, driven by its organic initiatives (new products and customers in the India business). Moreover, cost-cutting measures in both India and the EU and a recovery in domestic 2W demand will drive margin expansion going forward. However, the company is seeing a temporary slowdown due to weakness in the underlying light-vehicle market in EU and US off-highway markets.

* We believe CIEINDIA’s focus on profitability and increasing contribution of EVs in the overall business through execution of new orders can drive a re-rating. The stock trades at 18.5x/15.8x CY24E/CY25E consolidated EPS. Reiterate BUY with a TP of INR540 (premised on ~18x CY25E consol. EPS).

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