21 October 2020
3QCY20 Results Update | Sector: Automobile
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
52 / 0.7
179 / 59
TP: INR165 (+20%)
Below est.; Weak op. performance in both India and EU
Focus on new orders and restructuring to drive strong recovery
Mahindra CIE (MACA)’s adverse operating performance in 3QCY20 was
attributable to weaker revenue in India and restructuring cost in EU. While
it is focusing on new orders / exports in India, it is also cutting cost to
reduce breakeven points for the EU business.
We marginally cut our CY21E EPS to factor in lower revenue growth.
with TP of ~INR165 (13x Sep’22 consol EPS).
Financials & Valuations (INR b)
CY19 CY20E CY21E
EPS Growth (%)
-33.2 -75.5 366.6
Div. Yield (%)
FCF Yield (%)
Shareholding pattern (%)
FII Includes depository receipts
Operating deleverage and restructuring cost in EU impact performance
3QCY20 consol. revenue/EBITDA declined 9%/28% YoY, but PAT grew 4%.
For 9MCY20, revenue/EBITDA declined 34%/69% and posted net loss.
Consol EBITDA stood at ~INR1.5b (v/s est. INR2b), impacted by lower
revenues in India and restructuring cost in the EU business (INR270m).
Higher other income in the EU business on the sale of real estate in Jeco
boosted PAT to INR607m (+4% YoY).
India business performance was below estimates, with revenue declining
by ~6% YoY to ~INR8.6b (v/s est. ~INR9.3b). The India EBITDA margin stood
at 12.6% (v/s est. 12.7%).
EU revenues declined ~9% YoY to ~INR8.7b (v/s est. ~INR8.1b), with 22%
decline in EUR terms. EBITDA margins stood at 5.2% (v/s est. 10%),
impacted by INR270m restructuring cost in the German CV business.
For India, demand momentum is expected to continue in 4QCY20;
however, management is cautiously optimistic on demand post the festive
season. Average capacity utilization is at 90%.
The India business would grow faster than the market on the back of: 1)
exports growing from 12–13% of sales to 20% (to see benefit from 2HCY21)
and 2) increasing contribution from new orders to 25% of sales from 15%.
Post the restructuring, the EU business breakeven revenue stands at
INR5.5b/qtr. This would further reduce to INR5.3b/qtr after the completion
of the restructuring by 4QCY20.
Capacity utilization is at 90% in India, 80% in the EU (PV forging), and 65–
70% in the EU (CV forging). Metalcastello is at the bottom of the utilization
Capex: India CY20 capex would be at ~INR2.5b (INR2b capex for 9MCY20)
toward growth in capacity expansion. CY21 could be higher if the company
wins additional business.
CIE increased its stake by purchasing from the market. Stake now stands at
60.18% (v/s 58.02% in 2QCY20 and 56.29% in 3QCY19).
Net consol debt stands at INR16.1b.
MACA’s growth story is on track, driven by its organic initiatives (new
products/customers) and M&A focus.
The stock trades at attractive valuations of 12.7x/10.3x CY21E/CY22E
consol. EPS. Maintain
with TP of ~INR165 (13x Jun’22 consol EPS).
Highlights from management commentary
Valuation and view
Jinesh Gandhi – Research Analyst
Vipul Agrawal – Research Analyst
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.