Stock To Buy: Geojit Suggests Buy This Auto-Ancillary Stock For Strong 20% Potential Upside

Geojit Financial Services in its report on Mahindra CIE Automotive Ltd, published on 10 June 2022, has recommended investors buy for a target price of Rs 236/share. The brokerage believes despite demand push back for the short term, Mahindra CIE's key customers are outperforming the industry growth. As a result, the current order remains strong for the company.

Stock Overview

Mahindra CIE's stock price closed at Rs 198.50/share on Friday, June 10, 2022, up 0.69%. The stock performed well the previous week as it gave positive returns of 2.22%. However, over the years, its investment returns were not as exceptional as it last week. In 1 month it gave a negative return of 0.55%, in 1 year gave a negative return of 9.66%, in 3 years gave a negative return of 18.31%, and in 5 years gave a negative return of 18.31%.

The company has a market cap of Rs 7,525 crore. Its P/E ratio is 13.84, while the sector P/E ratio is 41.17. The stock is trading is Rs 34.55 higher than its 52-week low of Rs 163.50/share. While it is trading at Rs 130.5/share lower than its 52-week high of Rs 312/share. Based on the CMP and the estimated target price of Rs 236/share, the share price might jump by 20% during the next 12 months.

Business Performance

New business from large OEMs in Europe and US has led to overachieve the industry growth. The current order book continue to be strong till October. The growth in the Metal Castello business continue to outperform. Similarly, strong performance from Mahindra & Mahindra and Tata Motors are driving the growth story in the India business. In addition, post covid, the company foresee large supplier consolidation with respect to the delivery rates on time and Mahindra CIE holds successful track record with its customer during these crisis. The transition to India from China as a hub for export has grown significantly. The company has targeted to improve the export mix from the current 12% to 25% in the next 2-3 years.

Strong performance across segment

Mahindra CIE's consolidated revenue came at -18.2%YoY on the back of strong growth coming from India and Europe business. As a result. MCIE business saw a sequential sales growth of 25.4%QoQ. Despite semi conductor shortage, European business margin came at 10.2% positive on QoQ (+110bps). EBITDA margin from India business shows tremendous improvement of +300bps QoQ, owing to strong order form its key customers. We expect the company's margin improvement trend to continue on YoY basis in the coming quarters due to lower base and poised to benefit from the past restructuring exercise. We expect revenue to grew by 14% CAGR over CY21-23 estimate, respectively.

Margin to expand through cost rationalization

"We expect the EBITDA margin to expand and to reach 13% by CY23, owing to Superior product mix, productivity improvement, and product rationalization in Mahindra Forging Europe business. Similarly restructuring in Germany to concentrate more profitable products is on track. We believe improvement in the performance of new products, especially in EV share and pick up in the European car demand will lead to better utilization of the assets in the medium term," the brokerage has said.

Buy for target price of Rs 236/share

Mahindra CIE holds a strong position in its balance sheet with a D/E ratio of 0.3% and positive cash flow on CY21. The brokerage said, "We believe that the large supply disruption have been factored in the price and looks for a revival on a QoQ basis. We marginally upgrade our revenue estimates of CY22 by 5% owing to strong pick-up expected from its key clients both in the domestic and European business. Considering the growth potential and inexpensive valuation, we roll over our estimate to CY23 and value MCIE a 12xCY23E EPS and arrive at a target price of Rs236 and maintain our buy rating."

About - Mahindra CIE Automotive Ltd

Mahindra CIE is a multi-technology automotive components supplier listed on the stock exchanges in Mumbai. Mahindra CIE is one of the top global forging players with a strong presence in both Europe and India. Currently 2/3rd of the revenue comes from Europe, while the rest is from India. The company is a subsidiary of the CIE Automotive group of Spain; an industrial group specialising in supplying components and subassemblies for the automotive market, which has a presence across the globe and is listed on the stock exchange in Madrid.

Disclaimer

The stock has been picked from the brokerage report of Geojit Financial Services. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.