MOSL: Morning India (28/December/17)-1. Mahindra CIE (All set for growth phase)-2. NTPC (Revised norms provide relief from low PLF inefficiencies)

MOrning India (28/December/17): 1. Mahindra CIE (All set for growth phase); 2. NTPC (Revised norms provide relief from low PLF inefficiencies)

Today’s top research idea

Mahindra CIE: All set for growth phase; Benefits of consolidation + operating leverage to drive ~29% EPS CAGR

• MACA is all primed for a growth phase, after three years of consolidation. We believe all ingredients are in place for sustained growth: (a) India business high dependence on fast growing segments, (b) scope to add customers in Metalcastello and focus on value add at MFE, (c) limited growth capex, (d) supportive parent, and (e) focused M&A strategy.
  
• A strong, focused and disciplined parent, CIE has instilled financial discipline and high focus on delivering value-accretive growth. MACA would play an important role in CIE attaining its 2020 targets of doubling profits and RoNA of 20-25%.
  
• We estimate consolidated revenue CAGR of ~8% over CY17-19E, EBITDA margin expansion of ~260bp to ~15.1% by CY19E and EPS CAGR of ~29%. Strong earnings growth and limited capex (5-6% of sales) would drive improvement in capital efficiencies (RoEs to improve 630bp to 12.9%).
  
• We initiate coverage with a Buy rating and target price of INR297 (20x CY19E EPS), implying 19% upside.
  

Piping hot news

Govt signals fiscal slippage in 2017-18

• A day after the goods and services tax (GST) data for December showed a slide in revenue receipts, the government on Wednesday signalled that it may breach its fiscal deficit target of 3.2% of gross domestic product (GDP) by expanding its market borrowing programme for this financial year by Rs50,000 crore.