Mahendra CIE Automotive
Mahendra CIE Automotive
Margin improvements continue. Mahindra CIE reported 1QCY21 consolidated CMP (`): 171
EBITDA of Rs3.1 bn, 26% above our estimates due to strong revenue performance and Fair Value (`): 150
cost-cutting initiatives. We expect EU business revenue growth to remain muted due to
BSE-30: 48,782
weak economic growth; however, with the company’s focus on cost control, we expect
margins to improve. Also, faster adoption of EVs in the EU region and inferior return
ratios remain a concern. Maintain SELL with revised FV of Rs150.
Mahindra CIE reported consolidated EBITDA of Rs3.1 bn, 26% above our estimates largely due
to (1) better-than-expected revenue growth in India and European businesses and (2) better-
than-expected margin in European businesses. Consolidated revenues increased by 30% yoy led
by (1) 41% yoy increase in India business revenues and (2) 21% yoy increase in revenues in
Europe business (in INR terms). As a result, consolidated EBITDA margin improved by 100 bps
on a yoy basis to 14.7% mainly due to (1) operating leverage benefits and (2) cost-cutting
initiatives in 1QCY21. India business revenues increased by 8% qoq, 11% above our estimates
led by (1) 2-3% qoq increase in production volumes in the automotive segment and (2) 4.5%
qoq increase due to higher realization of RM pass-through. EBITDA margin came in at 15.5%
(+240 bps yoy), which was in line with our estimates. European business revenues in EUR terms
increased by 11-12% yoy led by (1) 50% yoy increase in Metalcastello business, (2) >10% yoy
increase in PV forging segment and (3) 2-3% yoy increase in CV forging segment. EBITDA
margin stood at 13.9% in 1QCY21 (+340 bps yoy), 240 bps above our expectations due to
cost-cutting initiatives and operating leverage benefits.
We have increased our CY2022-23E consolidated EPS estimates by 12-15% due to (1) 5-6%
higher revenue assumptions, (2) 110-120 bps expansion in EBITDA margin assumptions for
Indian business and (3) 10-20 bps expansion in EBITDA margin assumptions for European
business. We have cut our CY2021E consolidates EPS by 21% baking in one-time tax expense
of Rs1.4 bn as goodwill of a business will not be considered as a depreciable asset. We expect
Hitesh Goel
Indian and European operations to remain under pressure in 2QCY21 led by supply-chain
disruptions and concerns related to the second wave of Covid. However, the company expects
strong recovery from 2HCY21 onwards. The company derives 25-27% of the European Rishi Vora
business revenues from powertrain products, which are at risk due to shift towards EV and
currently the company’s order book for the EV segment is very small. Also, inferior return ratio
restricts multiple re-rating of the company in our view despite it reporting strong margin
performance over the past two quarters. Maintain SELL with revised FV of Rs150 (from Rs135
earlier) based on 10X March 2023E EPS.
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Automobiles & Components Mahindra CIE Automotive
European business revenues in EUR terms increased by 11-12% yoy despite flattish yoy
increase in production of European light vehicles market and 6% yoy increase in EU
M&HCV market in 1QCY21. The growth was led by – (1) 50% yoy growth in
Metalcastello division, (2) >10% yoy growth in PV forgings segment and (3) 2-3% yoy
growth in CV forgings segment. EBITDA margin stood at 13.9% in 1QCY21 (+340 bps
yoy), which was 240 bps above our estimates due to cost-cutting initiatives and operating
leverage benefits. The company has downsized their EU operations and is also looking to
shift some of the overseas plants to India in order to improve their profitability. The
company has incurred total restructuring cost of Rs750-800 mn in CY2020 and expects
to save EUR4 mn annually from CY2021E onwards. The company will continue to
rationalize business portfolios to maintain margins of Europe business. The company
expects 2QCY21 to remain under pressure due to semi-conductor shortages; however, it
expects strong recovery from 2HCY21 onwards. The company also highlighted that 25-27%
of the European revenues is derived from powertrain products, which will be at risk if EU
PV industry shift to electric. The company highlighted that EV penetration is increasing in
Europe and MCIE’s mitigation plan is to maintain current utilization at its European
forgings plants by (1) increasing market share in crankshafts, (2) focusing on non-engine
parts with dual use in BEVs like knuckles and (3) introducing AL forgings. However, we
believe the company needs to significantly ramp up their product offerings for the EV
segment in European business in order to stay competitive in the EV segment.
India business revenues increased by 41% yoy and 8% qoq, 11% above our estimates.
India business growth on a sequential basis was led by (1) 3-4% qoq growth led by
increase in production volumes of the customers and (2) 4.5% qoq impact due to higher
realizations on account RM pass-through. Indian business reported EBITDA of Rs1.6 bn
(KIE: Rs1.5 bn) in 1QCY21. EBITDA margin came in at 15.5% (+240 bps yoy), in line with
our estimates due to cost-cutting initiatives. As a result, the company reported PBT of
Rs1.2 bn in 1QCY21. The company expects Indian operations to remain under pressure in
2QCY21; however, it expects strong recovery from 3QFY21 onwards. The company
highlighted 20% of the Indian revenues is derived from powertrain products.
Other key points. (1) Breakeven monthly revenue run-rate for Mahindra CIE
consolidated stood at around Rs0.8 bn (Rs0.5 bn for EU operations and Rs0.3 bn for
Indian business), (2) the company will incur capex of 5-6% of consolidated revenues in
CY2021E mostly on account of capacity addition for Indian operations (in the range of
Rs4-4.5 bn), (3) in accordance with the requirements of Ind-AS 12 – Income Taxes, the
company has recognized a one-time tax expense amounting to Rs1.4 bn as the outcome
of the difference between goodwill as per the books of account and its updated tax base
of nil resulting from the aforementioned amendment, in addition to the current tax
expense debited to the statement of profit and loss. This deferred tax liability is not
expected to be a cash outflow in the future and its reversal is deemed unlikely as the
value of its associated goodwill is expected by value in use, (4) consolidated tax rate will
be around 26-27%, (5) the company will invest EUR4 mn in Bill Forge Mexico to set up
the press in the plant and (6) the company will pay 25% of the consolidated PAT as
dividend going forward.
Exhibit 1: Consolidated EBITDA was 26% above our estimates due to strong revenue performance and cost-cutting initiatives
Mahindra CIE interim results summary, calendar year-ends
Consolidated % change
1QCY21 1QCY21E 1QCY20 4QCY20 1QCY21E 1QCY20 4QCY20 CY2021E CY2020 CY2022E CY2021E
Sales 20,863 17,743 16,033 18,653 17.6 30.1 11.8 77,152 60,501 27.5 84,114 77,152 9.0
EBITDA 3,062 2,424 1,871 2,549 26.3 63.7 20.1 10,256 5,565 84.3 11,983 10,256 16.8
EBIT 2,179 1,524 1,056 1,668 43.0 106.3 30.6 6,512 2,501 160.4 7,948 6,512 22.0
EBT 2,037 1,474 874 1,611 38.2 133.1 26.4 6,164 1,952 215.7 7,719 6,164 25.2
Margins
EBITDA margin incl. other income(%) 14.7 13.7 11.7 13.7 13.3 9.2 14.2 13.3
EBIT margin (%) 10.4 8.6 6.6 8.9 8.4 4.1 9.4 8.4
Europe business % change
1QCY21 1QCY21E 1QCY20 4QCY20 1QCY21E 1QCY20 4QCY20 CY2021E CY2020 CY2022E CY2021E
Sales 10,375 8,254 8,593 8,951 25.7 20.7 15.9 37,278 31,200 19.5 39,256 37,278 5.3
EBITDA 1,441 949 900 1,066 51.8 60.1 35.2 4,777 2,609 83.1 5,208 4,777 9.0
EBIT 1,009 499 528 636 102.1 91.1 58.6 3,077 923 233.4 3,408 3,077 10.7
EBT 922 449 440 587 105.2 109.5 57.1 2,777 605 359.0 3,108 2,777 11.9
Margins
EBITDA margin incl. other income(%) 13.9 11.5 10.5 11.9 12.8 8.4 13.3 12.8
EBIT margin (%) 9.7 6.0 6.1 7.1 8.3 3.0 8.7 8.3
India business (Standalone + Bill Forge + Gears India + Aurangabad Electricals) % change
1QCY21 1QCY21E 1QCY20 4QCY20 1QCY21E 1QCY20 4QCY20 CY2021E CY2020 CY2022E CY2021E
Sales 10,488 9,488 7,439 9,702 10.5 41.0 8.1 39,874 29,301 36.1 44,857 39,874 12.5
EBITDA 1,621 1,475 971 1,483 9.9 66.9 9.3 5,479 2,956 85.4 6,776 5,479 23.7
EBIT 1,170 1,025 528 1,032 14.2 121.6 13.4 3,435 1,578 117.8 4,540 3,435 32.2
EBT 1,115 1,025 435 1,024 8.8 156.3 8.9 3,387 1,347 151.4 4,612 3,387 36.2
Margins
EBITDA margin incl. other income(%) 15.5 15.5 13.1 15.3 13.7 10.1 15.1 13.7
EBIT margin (%) 11.2 10.8 7.1 10.6 8.6 5.4 10.1 8.6
PBT margin (%) 10.6 10.8 5.8 10.6 8.5 4.6 10.3 8.5
Exhibit 2: We have increased our CY2022-23E consolidated EPS estimates by 12-15% led by increase in EBITDA margin assumptions
Earnings revision table, calendar year-ends, 2021-23E (Rs mn, %)
New estimates Old estimates % change
2021E 2022E 2023E 2021E 2022E 2023E 2021E 2022E 2023E
Consolidated
Net sales 77,152 84,114 89,360 73,708 80,145 84,412 4.7 5.0 5.9
EBITDA (incl. other income) 10,256 11,983 13,021 8,955 10,889 11,683 14.5 10.1 11.5
EBITDA margin incl. other income (%) 13.3 14.2 14.6 12.1 13.6 13.8 114 bps 66 bps 73 bps
Adjusted net profit 2,963 5,558 6,181 3,741 4,969 5,377 (20.8) 11.9 15.0
EPS 7.8 14.7 16.3 9.9 13.1 14.2 (20.8) 11.9 15.0
Europe
Net sales 37,278 39,256 40,298 35,529 37,543 38,787 4.9 4.6 3.9
EBITDA (incl. other income) 4,777 5,208 5,477 4,065 4,918 5,221 17.5 5.9 4.9
EBITDA margin incl. other income (%) 12.8 13.3 13.6 11.4 13.1 13.5 137 bps 17 bps 13 bps
Adjusted net profit 1,944 2,175 2,294 1,481 2,007 2,149 31.3 8.4 6.7
EPS 5.1 5.7 6.1 3.9 5.3 5.7 31.3 8.4 6.7
India business (Standalone + Bill Forge + Gears India + Aurangabad Electricals)
Net sales 39,874 44,857 49,061 38,179 42,602 45,625 4.4 5.3 7.5
EBITDA (incl. other income) 5,479 6,776 7,544 4,890 5,971 6,462 12.0 13.5 16.7
EBITDA margin incl. other income (%) 13.7 15.1 15.4 12.8 14.0 14.2 93 bps 109 bps 121 bps
Adjusted net profit 1,019 3,383 3,887 2,260 2,961 3,227 (54.9) 14.2 20.4
EPS 2.7 8.9 10.3 6.0 7.8 8.5 (54.9) 14.2 20.4
60%
Percentage of companies within each category for which Kotak
Institutional Equities and or its affiliates has provided
50%
investment banking services within the previous 12 months.
BUY. We expect this stock to deliver more than 15% returns over the next 12 months.
ADD. We expect this stock to deliver 5-15% returns over the next 12 months.
REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.
SELL. We expect this stock to deliver <-5% returns over the next 12 months.
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and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction
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