Mahindra CIE’s Q4 results fail to cheer investors


Shares of Mahindra CIE Automotive Ltd are down about 7% on NSE in the past two days. Of course, the intensifying geopolitical tensions between Russia and Ukraine have not helped sentiments in the stock markets with benchmark indices declining around 3% in Thursday’s morning trade. Even so, the Q4 results were not satisfactory, especially in terms of margins. The company follows a January to December financial year.

Higher commodity costs and operating deleverage led to a decline in consolidated earnings before interest, tax, depreciation and amortization (Ebitda) margin year-on-year (y-o-y) in Q4 by 280 basis points (bps) to 9.8%. One basis point is one-hundredth of a point. This is in comparison to Motilal Oswal Financial Services Ltd’s analysts’ estimate of 12.7%.

In Q4, revenue rose by 5% y-o-y to Rs2,064 crore on the back of 10% y-o-y growth in India partly offset by 3% fall in Europe. Volume growth in the medium and heavy commercial vehicle segment supported the business in India compensating for the weak two-wheeler and tractor demand. Business in Europe was severely affected by semiconductor shortage.

More significantly, the pass-through of increase in raw material costs drove revenue growth. To that extent, this adversely affected the company’s profit margins in India and Europe business. Had the company not passed on the rise in input costs, its Q4 sales in India and Europe would have declined by 5% and 19% y-o-y, respectively.

“We cut our CY22E EPS estimates by 3.5% to account for margin pressures across both geographies and maintain CY23E EPS estimates” said analysts at Motilal Oswal in a report.

Going ahead, the additional capex and new capacities reflect that the order book is strong in India. Further, strong demand in the passenger vehicles and commercial vehicles (CV) segment is expected to drive growth. But the tractor and two-wheeler segments are foreseen to remain dull. In Europe, the company is seeing good demand for CVs.

“With chip shortage set to normalize gradually in next three quarters, along with low base for domestic tractors/2Ws in H1CY22, we expect revival in growth and profitability for Mahindra CIE from H2CY22″ said ICICI Securities analysts in a report. On the electric vehicle (EV) front in India, around 25%-30% of the new orders cater to EV and hybrid parts, specifically for two-wheeler segments. Similarly, in Europe, around 75% of new orders are EVs and hybrids.

“Any significant order wins, or growth in the EV portfolio, can act as a re-rating factor. We have lowered our target multiple to 13x (from 15x earlier) as recovery in capital efficiency is slower than expected” added the Motilal Oswal report.

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