Mahindra CIE Automotive - CIE 2025 plan targets EVs, superior margins - ICICI Securities

CIE Automotive hosted its annual Capital Market Day to share its vision for 2025 and strategies to achieve EBITDA (19% margin) of EUR1bn and PAT of EUR500mn by CY25 (~65% CFO to EBITDA conversion/ capex at ~5% of sales).

Key takeaways:

- CIE's Plan 2025 has an ambitious target of ~48% growth (~20% higher than industry) in sales, EBITDA of EUR1bn at 19% margins, and PAT of EUR 500mn on a cumulative capex of EUR1bn over the coming five years. The target for net debt / EBITDA is <2x (cumulative capex EUR ~1bn). CIE expects MACA to drive revenue growth and witness further margin expansion

- Plan 2025 continues with CIE's focus on adoption and implementation of future-ready technology using Industry 4.0 elements i.e. robotics, Big Data, IOT, digitisation, and cloud.

- On forgings, the parent plans to increase capacity in its India subsidiary MACA through a new plant in Coimbatore for: 1) precision parts, and 2) expanding the driveline components for EVs using hot forgings. EU strategy is largely focused on increasing EVs parts (steel, aluminum forging), other driveline components.

- In machining, the focus is on increasing value-added components and diversifying the customer base. India strategy includes increasing domestic market growth, localising product imports from China, and increasing exports to the US.

- For the aluminium segment, CIE's India (MACA) focus is on diversifying into new customers and new products for PV segment (AEL currently is focussed on 2Ws). Transfer of CIE's technology transfer and ramp-up of new plant in India which would help in exports too.

- Mexico metal stamping plants, a global benchmark, will be supported by two new greenfields to expand capacity into steering systems and new EV components. In India, a new plant for fuel rails will be established in Hosur; strong automation is also planned for the Kanhe plant for improved efficiency.

- CIE will continue with its Asia strategy to add new customers. Composites manufacture in India would be used to ramp up new EV programs.

- MACA will set up an iron casting moulding line to expand machining capacity and launch new export programmes for global OEMs.

- CIE continues to expand into Asia, India for the roof systems segment considering the current low penetration levels and opportunity size. India could witness local greenfield manufacturing and we believe this could potentially be added as a new revenue line for MACA India.

Valuation and risk

We believe MACA is a well-diversified MNC play with dominant India contribution (~58% as PBT share CY22E/ up 11% since CY19). Stock remains inexpensive at ~8% FCF yield on CY22E. We raise our target multiple to 16x (earlier:15x) CY22E EPS of Rs18. Maintain BUY with a revised target price of Rs285/share (earlier: Rs264).

Downside risk: Sudden decline in European truck market demand could impact margins.

Upside risk: Quicker ramp-up of India growth could improve profitability faster than anticipated.

Shares of Mahindra CIE Automotive Limited was last trading in BSE at Rs.226.7 as compared to the previous close of Rs. 225. The total number of shares traded during the day was 12760 in over 464 trades.

The stock hit an intraday high of Rs. 230.05 and intraday low of 225.9. The net turnover during the day was Rs. 2907062.

Source : Equity Bulls

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