Sharekhan Is 'Positive' On This Mid-cap Auto Stock Fo 21% Potential Return, Firm Indian Business

Sharekhan, a top brokerage firm recommends investors to buy the stock of Mahindra CIE Automotive Ltd. The brokerage firm stated, "Market share gains in the automotive segment are driven by widening of the product portfolio, expansion in the addressable market, deepening of business from existing clients, acquisition of new clients and increasing geographical reach. A strong pedigree of its parent company, revenue visibility and its ability to achieve profitable growth through M&A, provides strong potential for re-rating of valuation multiples."

Stock To Buy: Target Price

The Current Market Price (CMP) of Mahindra CIE Automotive Ltd. is around Rs. 312. Sharekhan has estimated a Target Price for the stock at Rs. 377.52. This stock has the potential to give a 21% return, in the upcoming 1 year. It is a mid-cap stock with a market capitalization of around Rs. 11,544 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 312
Target Price	Rs. 377.52
Potential Upside	21.00%
52-week high share price	Rs. 328
52-week low share price	Rs. 163.95

Financials

Q3CY2022 results lagged expectations, driven by pressure on EBITDA margins of the European business. Sales, EBITDA and PAT were lower-than-expectations by 3.7%, 22.7% and 29.8 respectively. EBITDA margin for the Q3CY22 stood at 11.6%, which is a 10bps q-o-q improvement, but 290 bps lower than our estimates, led by unfavourable currency movement, sharp increase in energy prices (more than 50% increase) and a rise in commodity prices.

Stock Upside

Giving a buy rating, Sharekhan stated, "We stay positive view on Mahindra CIE Limited (MCIE), driven by expected benefits from synergies of Indian and European businesses. Margins of the Indian business are expected to remain firm and improve with higher utilisation, while margins for European business maybe subdued in the near term. The stock trades at an attractive valuation of a P/E multiple of 13.6x and EV/EBITDA of 8.3x its CY2023E earnings estimates. Fresh acquisitions and improvement in profitability are key growth drivers. We maintain a positive viewpoint on the stock with an upside potential of 21% from current levels."

New acquisitions & global business

MCIE is focused on targeting new acquisitions to fill gaps in strategic technologies and expansion in global markets. The company has emerged as a global player and demonstrated its ability to achieve profitable growth through mergers & acquisitions. In addition, we expect the company to grow businesses and profitability by increasing wallet share of value-added products, continued focus on exports, acquisition of new clients and fresh revenue streams. The company's management has given a positive outlook for the Indian business but highlighted the risks of Europe region led by Ukraine war.

Company Portfolio

Mahindra CIE Automotive Limited (MCIE) is a large, diversified auto-components company with a presence across many processes/ product lines, geographies and customers. The company manufactures complex value-added products that differentiate it from other 'tier 2 auto component companies. MCIE just like the CIE Automotive Group of Spain is focused on the automotive market - cars, utility vehicles, commercial vehicles, two-wheelers and tractors. The company has 31 manufacturing facilities including 8 manufacturing facilities in Europe and 1 in Mexico.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.