Strong Buy Of Growth Oriented MNC Stock At Reasonable Valuations

Mahindra CIE
Sector : Automobile

Growth Oriented MNC at Reasonable Valuations

We believe MHCIE is likely to be a beneficiary of cyclical upturn in Indian auto sector from H2CY20 along with its strategy of penetrating into new customers and product technologies.

We expect MHCIE to report 13.4% PAT CAGR through CY19-21E. In a stable state scenario MHCIE is expected to generate~Rs19.6bn operating cash and ~Rs10bn free cash over CY19-21E.

Its return ratios have been depressed due to goodwill on its balance sheet (Rs35.6bn -79% of its net worth). Net of goodwill it’s ROE and ROCE stands at 26.3% and 21.6% by CY21.

MHCIE Stock at Rs148 is trading at PE of 9.2xCY21E earnings and EV/EBITDA of 4.6x. We believe stock is highly undervalued. Initiate coverage on the stock with target price of Rs241 (PE of 15xCY21E)

 MHCIE is a most diversified India based auto MNC and only auto component Company in India which has a presence across manufacturing processes like Forging, Casting, Stamping and Magnetic Products.

 Post its alliance with CIE in 2014; the Company has consolidated its business model by improving its plant operations, adding new business segments and strengthening its balance sheet.

 Under a new phase, it is planning to expand its operations through combination of organic and inorganic route for (a) access to new customers especially Japanese and Korean OEMs in India (b) access to aluminum and plastics in India and (c) Access to ASEAN market.

 We believe MHCIE is also likely to have a strong head start to address EV component opportunity in India by leveraging its Parents expertise.

 We expect MHCIE to report 13.4% PAT CAGR through CY19-21E. MHCIE is expected to generate ~Rs19.6bn operating cash and ~Rs10bn free cash over CY19-21E which it plans to utilize for growth.

 Its return ratios have been depressed due to goodwill on its balance sheet (Rs35.6bn -79% of its net worth). Net of goodwill it’s ROE and ROCE stands at 26.3% and 21.6% by CY21.

 Stock at Rs148 is trading at PE of 9.2xCY21E earnings and EV/EBITDA of 4.6x. We believe MHCIE is likely to be a beneficiary of cyclical upturn in Indian auto sector from H2CY20 along with its strategy of penetrating into new customers and product technologies. We initiate coverage on the stock with a target price of Rs241 (PE of 15xCY21E)