MOSL: MAHINDRA CIE (Buy)-Strong quarter-India business drives superior consol. Performance
Mahindra CIE: Strong quarter; India business drives superior consol. performance
(MACA IN, Mkt Cap USD1.3b, CMP INR236, TP INR298, 26% Upside, Buy)
- 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.
- EU business revenue grew ~27% YoY to INR11.8b (CC growth of 17%). EBITDA margin contracted ~170bp QoQ (flat YoY) to 12.2%, mainly due to higher RM costs. PBT grew ~46% YoY to INR930m.
- Key earnings call takeaways: (a) Won orders from Kia and Hyundai in the foundry and forging divisions, respectively; revenue contribution to begin from CY19. (b) BFL’s Mexico plant ramp-up is on track; complete ramp-up is likely by Sep-19, with peak revenue of USD30-35m p.a. (c) New projects and ramp-up in existing projects at Metalcastello, MFE and Lithuania would enable MCIE Europe to outperform market in CY18. (d) In EU business, most customers have agreed for price increases for commodity inflation.
Mahindra CIE Automotive Limited is an auto components supplier with presence in many technologies, which include forgings, castings, stampings, magnetic products and composites. The Company is focused on the automotive market, including cars, utility vehicles, commercial vehicles and tractors. The Company's Forgings business offers crankshafts, stub axles, forged and machined parts, front axle beams and steel pistons, flashless near nett forgings and forged steel parts; Stampings business offers sheet metal stampings, components and assemblies; Castings business offers turbocharger housings, axle and transmission parts; Magnetic Products business offers soft and hard magnets, and magnetic induction lighting; Composites business offers compounds, components, and products, and Gears business offers engine gears, timing gears, transmission gears, transmission drive shafts and crown wheel pinion. It operates in India, Italy, Spain, Lithuania, Germany and the United Kingdom.
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