EUR 120.00 For Business Accounts Only

MOSL: MAHINDRA CIE (Buy)-Below-estimate; sharp decline in EU diluted by beat in India

MAHINDRA CIE: Below-estimate; sharp decline in EU diluted by beat in India

(MACA IN, Mkt Cap USD0.7b, CMP INR138, TP INR191, 38% Upside, Buy)

 

Broad basing of business continues despite cyclical pressures

• MACA’s 4QCY19 operating performance was weak across operating parameters owing to a sharp fall in EU business revenue. While India business should see emergence of stability, the EU business outlook for M&HCV/off-road has weakened. Amidst cyclical pressures, MACA’s efforts to diversify India business are on track.
• We downgrade our CY20/21 EPS estimate by ~8%/3% to factor in the weakness in the EU business. Maintain Buy with a target price of ~INR191 (~12x Dec’21 EPS) due to cheap valuations.

 Below-estimate; Miss in EU more than offsets beat in India

• net sales declined ~13% YoY to ~INR17.2b (our estimate: ~INR20b), led by ~27% decline in EU business. India business grew at ~6% driven by consolidation of AEL.
• EBITDA margin shrank by 60bp YoY (+120bp QoQ) to 12.4% (our estimate: 12.2%) and EBITDA declined 17% YoY to ~INR2.1b (our estimate: ~INR2.5b).
• PBT before EO fell 31% YoY to ~INR1.2b (our estimate: ~INR1.5b). However, substantially higher tax provisioning (both in India and EU) resulted in ~87% YoY decline in adj. PAT to ~INR186m (our estimate: ~INR951m).
• For CY19, revenue/EBITDA/adj. PAT declined 2%/21%/33%.