ICICI Securities has given Buy recommendation for Mahindra CIE Automotive with a target price of Rs. 345 in its research report issued on Aug 27, 2022

ICICI Securities research report on Mahindra CIE Automotive

We recently interacted with Mahindra CIE management (MACA) and following are the key takeaways: 1) company is targeting to take India revenue mix to ~60% vs 50% currently, driven by fast-growing profitable opportunities visible 2) M&M India revenue mix is now at 35%, with newly-launched SUVs pushing up per unit value-addition; 3) strong demand from PV makers (e.g. Tata Motors, M&M, Hyundai and Kia) has led to MACA adding capacity across stamping, magnetics and warm forging operations; 4) ~20%/~25% of India/EU businesses are under EV disruption risk and management is well prepared to scale up the EV parts business to combat the risks; 5) PV demand in the EU is yet to see major impact amid the current macro-issues though CV demand would get impacted 6) in EU forging operations, power cost constitutes 4% of revenue (thus, surging power cost accounted for 700-800bps of overall cost inflation, though it got partly mitigated with the passing-on of ~50-60% of the rise in electricity cost); 7) management is confident of sustaining India EBITDA margin at ~15% and take it up to ~17-18%. We expect MACA to deliver a mean FCF of ~Rs5bn p.a. in CY22ECY23E, with RoE doubling to ~15% by CY23E (from ~8% in CY21). This would deliver ~7% FCF yield on a lean balance sheet.


Maintain BUY with a DCF-based target price of Rs345/share, implying ~14x CY23E EPS.

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