Target: ₹296

CMP: ₹224.40

Mahindra CIE (MACA) reported a strong quarter with EBITDA margin coming in at 11.5 per cent, with gross margin largely flat YoY despite input cost adversities. It was almost in line with our estimate of about 10 per cent, down by a mere 150 bps YoY. Consolidated revenues were up 18 per cent YoY, driven by 15 per cent/20 per cent YoY growth in India/EU sales.

Half of the growth in EU was driven by steel cost pass-through, while India growth was led by growth in PVs/CVs and metal inflation. Power cost escalation impacted EU margin by about 200 bps YoY and MACA is trying to get it included under the pass-on clause.

With parent CIE’s capability to service global EV OEMs, we believe it is a matter of time before MACA also started making EV components for the EU PV market.

We expect the company to deliver mean FCF of about ₹500 crore p.a. in CY22-CY23. With RoE improving to about 14 per cent by CY23 (about 8 per cent in CY21), about 7 per cent FCF yield, 2 per cent dividend yield and lean balance sheet, we believe MACA is an attractive Buy.

We value it on DCF, with a target price of ₹296/share (earlier: ₹287), implying about 14x CY23 EPS, keeping CY22/CY23 estimates unchanged.