Buy Mahindra CIE Automotive, target price Rs 140: ICICI Securities
The brokerage revised its estimates downwards, factoring in more Covid-19 related impacts and cut estimates by 50 per cent/35 per cent for CY20E/CY21E respectively.
By ETMarkets.com | Updated:
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ICICI Securities has given a buy rating to Mahindra CIE Automotive with a target price of Rs 140.
Mahindra CIE Automotive’s (MACA) earnings performance in the first quarter of calendar year 2020 (Q1CY20) slumped ~79 per cent as consolidated sales declined 22.5 per cent year on year to Rs16 billion with EBITDA margin at 11.7 per cent. Consolidated revenues witnessed ~11-12 per cent of lost sales due to covid-19, had a significant cost impact.
India margin held up well at 13 per cent (up 46 bps quarter on quarter), reflecting the benefits of cost-saving measures undertaken. However, slower demand pickup post COVID-19 is likely to push recovery into CY21. European business is also expected to remain weak in CY20 across PVs/CVs. Management indicated current cash burn remains limited to ~Rs 1 billion/month on a zero revenue basis and is likely to allay investors’ fears. Long-term, the brokerage believes the company’s focus on margins/cash flows coupled with revenue growth (new products/market share gains) could aid value creation.
The share price of the company moved up by 4.99 per cent from its previous close of Rs 78.20. The last traded price is Rs 82.10. Incorporated in 1999, Mahindra CIE Automotive has a market cap of Rs 2946.81 crore.
Investment Rationale
The brokerage revised its estimates downwards, factoring in more Covid-19 related impacts and cut estimates by 50 per cent/35 per cent for CY20E/CY21E respectively. It believes the company is a well diversified MNC supplier with products and technologies across end-segments. The stock has witnessed ~56 per cent decline in the past 3-months with the market likely factoring in low probability of earnings recovery in CY21. Factoring in the near term risks, the brokerage cut the target multiple to 14 times (earlier:15 times) CY21E EPS. However, a strong rebound in earnings is expected in CY21. It has maintained a buy rating with a reduced target price of Rs140/share (earlier: Rs183).
Financials
Promoter/FII Holdings
Promoters held 67.72 per cent stake in the company as of the fourth quarter ending March 31, 2020, while FIIs held 14.85 per cent, DIIs 6.75 per cent and public & others 10.65 per cent.
Mahindra CIE Automotive’s (MACA) earnings performance in the first quarter of calendar year 2020 (Q1CY20) slumped ~79 per cent as consolidated sales declined 22.5 per cent year on year to Rs16 billion with EBITDA margin at 11.7 per cent. Consolidated revenues witnessed ~11-12 per cent of lost sales due to covid-19, had a significant cost impact.
India margin held up well at 13 per cent (up 46 bps quarter on quarter), reflecting the benefits of cost-saving measures undertaken. However, slower demand pickup post COVID-19 is likely to push recovery into CY21. European business is also expected to remain weak in CY20 across PVs/CVs. Management indicated current cash burn remains limited to ~Rs 1 billion/month on a zero revenue basis and is likely to allay investors’ fears. Long-term, the brokerage believes the company’s focus on margins/cash flows coupled with revenue growth (new products/market share gains) could aid value creation.
The share price of the company moved up by 4.99 per cent from its previous close of Rs 78.20. The last traded price is Rs 82.10. Incorporated in 1999, Mahindra CIE Automotive has a market cap of Rs 2946.81 crore.
Investment Rationale
The brokerage revised its estimates downwards, factoring in more Covid-19 related impacts and cut estimates by 50 per cent/35 per cent for CY20E/CY21E respectively. It believes the company is a well diversified MNC supplier with products and technologies across end-segments. The stock has witnessed ~56 per cent decline in the past 3-months with the market likely factoring in low probability of earnings recovery in CY21. Factoring in the near term risks, the brokerage cut the target multiple to 14 times (earlier:15 times) CY21E EPS. However, a strong rebound in earnings is expected in CY21. It has maintained a buy rating with a reduced target price of Rs140/share (earlier: Rs183).
Financials
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For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1662.70 crore, down -3.50 per cent from last quarter sales of Rs 1722.94 crore and down -23.53 per cent from last year's same quarter sales of Rs 2174.39 crore. The company reported net profit after tax of Rs 20.79 crore in the latest quarter.Promoter/FII Holdings
Promoters held 67.72 per cent stake in the company as of the fourth quarter ending March 31, 2020, while FIIs held 14.85 per cent, DIIs 6.75 per cent and public & others 10.65 per cent.
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