BSE SENSEX
36,140
S&P CNX
11,084
Mahindra CIE
CMP: INR240
TP: INR297(+24%)
Buy
Ahead of the curve in identifying EV prospects
Ample opportunities in BEV to help mitigate potential weakness in
powertrain/gearbox components
We attended Mahindra CIE’s (MACA) Investor Meet, where Mr Inigo Loizaga, Engineering
Director, CIE Automotive Group, provided updates on technological trends in the
automotive industry (click
here for the presentation).
According to Mr Loizaga, CIE is
ahead of the curve in terms of developing new technologies for electric vehicles (EVs). He
also expressed optimism that evolving opportunities within BEV and PHEV components
(aluminum, stamping and plastic) could more than compensate for the potential threat to
powertrain and gearbox components, and that macro trends like increasing outsourcing
could benefit companies like CIE and MACA.
23 January 2018
Update
| Sector:
Automobiles
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
MACA IN
378
270/189
-11/-17/-10
90.7
1.4
40.1
30.1
Financials Snapshot (INR b)
2017 2018E 2019E
Y/E Dec
53.2 60.7
65.7
Net Sales
5.3 60.7
65.7
EBITDA
1.7 56.5
61.0
PAT
4.6
9.0
12.0
EPS (INR)
28.5 94.3
33.0
Gr. (%)
86.4 95.4 107.3
BV/Sh (INR)
6.6
9.9
11.8
RoE (%)
5.7
8.3
10.0
RoCE (%)
51.8 26.7
20.0
P/E (x)
2.8
2.5
2.2
P/BV (x)
Shareholding pattern (%)
As On
Dec-17 Sep-17 Dec-16
Promoter
69.9
69.9
69.9
DII
7.1
6.4
6.7
FII
5.7
5.5
5.1
Others
17.3
18.3
18.3
FII Includes depository receipts
Stock Performance (1-year)
Mahindra CIE
Sensex - Rebased
280
260
240
220
200
180
Key highlights:
Over the last several decades, the automotive industry has seen multiple
evolutions, from injection systems (from carburetor distributor to GDi 350bar),
to auxiliaries electrification (e.g. hydraulic steering to electric steering and
amplification in the braking forced changing from air/vacuum to electrically
driven force) to materials usage (e.g. casted crankshafts to forged crankshafts).
According to management, CIE has always been ahead of the curve to
anticipate changes in the automotive industry to best meet technology
requirements of OEMs in all markets and segments where it operates.
CIE has demonstrated its presence in critical EV components. It is already
supplying products to leading EV OEMs globally such as Renault, Nissan, Tesla,
Mahindra Reva, Magneti Marelli, and Bosch, among others.
CIE is also engaged in the supply of aluminum and machining components
(such as platine assembles, battery supporter, end plate and housing trans
case) to Renault, metal stamping components (battery structure, winding hub,
battery cover) to Renault and Nisan, stamping and welding components
(corners, skid plates, floor, battery wall, cross member) to Tesla, and rotor
components to Borg Warner.
The EV industry is grappling with various uncertainties, such as lithium/other
raw material (RM) availability, RM/battery costs, government grants, and huge
capex for battery factories/charging infrastructure – this is likely to keep EV
penetration under check. Most forecasts point toward average global EV
penetration of 7-8%.
We are enthused with CIE’s readiness to move ahead in the EV segment with a
diversified product portfolio. MACA would leverage upon CIE’s technology and
product portfolio in aluminum and plastics beyond its own expertise in forging,
machining and stamping.
Valuation view:
We value MACA at 20x CY19E consolidated EPS (at ~20% discount
to Bharat Forge’s target multiple of ~25x, given its relatively weak, though
improving, capital efficiency). Maintain
Buy
with a target price of INR297.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Deep A Shah – Research Analyst
(Deep.S@MotilalOswal.com);
Suneeta Kamath – Research Analyst
(Suneeta.Kamath@MotilalOswal.com);