CIE Automotive India Ltd. share price target

Mahindra CIE (MCIE) is among the top global forging players with a strong presence in both Europe and India. Currently 2/3 of the revenue comes from Europe (split btw CV's & PV's) while rest from India (PVs). Q1CY18 registered a revenue (Consolidated) growth of 25.6%YoY led by 24% growth from India and 26% from Europe business. Consolidated EBITDA margin improved by 100bps led by superior geographical mix and cost control initiatives. Strong order book from European subsidiary and new launches from...

CIE Automotive based in Spain and parent Company of Mahindra CIE (MHCIE) has revised its sales and profit guidance upwards for CY20 post its Q1CY18 results. We believe, Mahindra CIE which contributes ~ 23% to CIE's sales is likely to be a part of this upward revision in guidance.

ICICI Securities Ltd | Retail Equity Research Mahindra CIE's Q1CY18 consolidated revenues came in at | 1911 crore (up 25.6% YoY) vs. our estimate of | 1800 crore. The EBITDA margin came in at 13.8%, up 101 bps YoY vs. our estimate of 13.6% Revenues from India [standalone + Bill Forge (BFL) + gears business] grew 24.4% YoY to | 775.6 crore. This is after significant sales growth was witnessed across its division and supported by its top three clients (that account for >50% of its revenue). The EBITDA margin expanded...

Consol. revenue grew 27% YoY to INR20b (est. of INR16.6b), driven by strong volume growth in India/Europe and INR depreciation. EBITDA increased ~37% YoY to INR2.6b (est. of INR2.3b), with the margin of 13% missing our estimate of 13.7% due to absorption of higher RM costs in the EU (to be passed on subsequently). PBT grew ~62% YoY to INR1.9b (est. of INR1.4b). India business revenue grew ~26% YoY (17% QoQ) to INR8.3b, driven by strong growth in the BFL, castings, forgings and gears divisions. EBITDA increased ~50% YoY (+41% QoQ) to INR1.1b, with the margin expanding 220bp YoY (+240bp QoQ) to 13.9%, led by a favourable mix and operating leverage. PBT grew 88% YoY (+138% QoQ) to INR967m, also benefiting from ~INR107m of FX gain at BFL Mexico.

MHCIE's India sales (~ 40% of consolidated sales) increased by 19.5% yoy to Rs7.7bn mainly on account of strong demand from domestic PV, Tractor and 2W industry. Its key domestic customers (M&M, Maruti and Tata Motors) grew by 11.7%. MHCIE's Europe sales (~ 60% of consolidated sales) increased by 22.8% yoy to Rs11.4 bn mainly on the back of impressive 11.2% volume growth supported by buoyancy in European market.

Q4CY17 results were 6% ahead of estimates at operational level, as both India and Europe operations continued to deliver on both topline and EBITDA margin fronts. Consolidated EBITDA margin at 14.3% (+560 bps YoY) benefitted from price hikes received (in Europe) and merger of Bill Forge.

ICICI Securities Ltd | Retail Equity Research Mahindra CIE's Q4CY17 consolidated revenues were at | 1,618 crore (up 22% YoY). The sales growth is organic & was across divisions in the quarter. Revenues from India [standalone + Bill Forge (BFL) + gears business] grew 17.9% YoY to | 666 crore. Growth without BFL in India was up 16% YoY, mainly due to higher production volumes of its top three clients (account >50% of revenue). Revenue from Europe increased 24.3% YoY to | 959 crore as 1) MCI had a positive exchange...

Consol. revenue grew 25% YoY to INR17.1b (est. of INR14b). EBITDA increased ~115% YoY to INR2.3b (est. of INR1.7b), with the margin expanding 560bp YoY (+100bp QoQ) to 13.4% (est. of 12%). PBT (before EO expenses) grew ~250% YoY to INR1.3b (est. of INR856m). India business revenue grew ~18% YoY to INR6.6b, driven by ~16% growth in India (ex-BFL business). EBITDA increased ~34% YoY (-16% QoQ) to INR805m, with the margin expanding 140bp YoY (-180bp QoQ) to 11.5% (est. of 9.6%), led by lower RM cost (50.2% v/s est. of 52.9%) due to a favourable mix. Recurring PBT grew 19% YoY (-40% QoQ) to INR406m.

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.

MACA is all primed for a growth phase, after three years of consolidation. We believe all ingredients are in place for sustained growth: (a) India business high dependence on fast growing segments, (b) scope to add customers in Metal castello and focus on value add at MFE, (c) limited growth capex, (d) supportive parent, and (e) focused M&A strategy. A strong, focused and disciplined parent, CIE has instilled financial discipline and high focus on delivering value-accretive growth. MACA would play an important role in CIE attaining its 2020 targets of doubling profits and RoNA of 20-25%. We estimate consolidated revenue CAGR of ~8% over CY17-19E, EBITDA margin expansion of ~260bp to ~15.1% by CY19E and EPS CAGR of ~29%. Strong earnings growth and limited capex (5-6% of sales) would drive improvement in capital efficiencies (RoEs to improve 630bp to 12.9%). We initiate coverage with a Buy rating and target price of INR297 (20x CY19E EPS), implying 19% upside