MOSL: MAHINDRA CIE (Buy)-Above est.-Strong performance across businesses; Outlook remains positive

Mahindra CIE: Above est.; Strong performance across businesses; Outlook remains positive

(MACA IN, Mkt Cap USD1.3b, CMP INR228, TP INR303, 33% Upside, Buy)

• 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.
• EU business revenue grew ~32% YoY to INR10b. EBITDA margin expanded ~290bp QoQ (+830bp YoY) to 14.3%, led by efficiency gains and retrospective price revision (~50bp). EBT grew ~40% QoQ (~23x YoY).
• Key takeaways from the call: a) Management believes that it is on track to achieve 2020 targets. b) New projects and ramp-up in existing projects would enable MCIE Europe to outperform the market in 2018. c) Focus remains on adding new customers in India business; added Ashok Leyland (Stampings), TBK India (Gears) and one more in BFL Mexico. d) Stampings and composite division commenced supply to EVs, although contribution remains modest. e) Capacity utilization in BFL’s Mexico plant is at ~40% currently; would be ramped up to ~80% by end-CY18.