22 July 2020
2QCY20 Results Update | Sector: Automobile
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TP: INR141 (+28%)
Above est.; Sharp reduction in other expenses drives EBITDA beat
New opportunities emerge on import substitution
MACA’s 2QCY20 operating performance came in better than est. owing to a
sharp reduction in other expenses. While it is leveraging opportunities on
import substitution, it is also cutting cost to reduce breakeven points.
We upgrade our CY21E EPS by 2.5% (CY20 LTP) to factor lower other
expenses, lower depreciation, and Fx loss reversal. Maintain
with TP of
~INR141 (13x Jun’22 consol EPS).
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
41.7 / 0.6
203 / 59
Lower other expenses drive beat despite restructuring cost in EU
Financials & Valuations (INR b)
CY19 CY20E CY21E
EPS Growth (%)
-33.2 -80.3 419.9
Div. Yield (%)
FCF Yield (%)
Shareholding pattern (%)
FII Includes depository receipts
2QCY20 consol revenues declined ~65.7% to ~INR7.35b (est.: ~INR6.8b).
EBITDA loss stood at ~INR963m (v/s est. loss of INR1.7b), lower than
estimated, on account of a sharp reduction in other expenses (~50% QoQ).
Furthermore, a change in the depreciation policy to the unit-of-production
method (from the straight-line method) resulted in lower depreciation by
INR357m. As a result, reported loss was restricted to ~INR1.29b (v/s est.
loss of ~INR1.8b).
The India business
saw revenue decline of ~72% YoY to ~INR2.65b (in-line).
EBITDA loss stood at INR474m (v/s est. loss of INR855m), lower than
estimated, driven by lower other expenses and lower depreciation.
The EU business
saw revenue decline of ~60% YoY to ~INR4.7b (v/s est. of
INR4.1b). EBITDA loss stood at INR491m (v/s est. loss of INR821m).
In the India business, sales for April and May dropped below breakeven;
June saw positive EBIT. Current capacity utilization is at ~50% and is
expected to reach 65–70% in 3QCY20.
India’s employee headcount has been reduced, and the benefit would
reflect in the coming quarters (10% permanent reduction).
It is seeing the emergence of import substitution opportunity in India and
has already acquired similar business in the Gears and Magnets division.
Also, it expects consolidation in the vendor base in both India and the EU, a
benefit for MACA.
It has reduced its breakeven level by 10% to revenues of INR9b/quarter by
reducing fixed cost by ~INR100m/month. This, coupled with on-going
restructuring at MFE and Metalcastello, should help profitability normalize
to pre-COVID-19 levels by the end of CY20.
BF Mexico changed its functional currency to USD (effective from 1
2020), resulting in the reversal of Fx loss of ~INR418m reported in 1QCY20.
EU is nearing normalcy as June was EBITDA positive (excl. cost of restructuring).
Utilization would inch up to 65–70% in 3QCY20 (55–60% in June).
The parent is open to increasing its stake through a creeping acquisition if
market price is conducive.
The stock trades at attractive valuations of 11.4x CY21E consol. EPS and 0.8x
CY21 P/B. Maintain
with TP of ~INR141 (13x Jun’22 consol EPS).
Highlights from management commentary
Valuation and view
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Vipul Agrawal – Research Analyst
(Vipul.Agrawal@motilaloswal.com); +91 22 7193 4322
research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P
Investors are advised to refer through important disclosures made at the last page of the Research Report.