1. business and industrial
2. company
3. merger and acquisition

Result Update
October 27, 2014
Rating matrix
Rating
:
Target
:
Target Period
:
Potential Upside
:
Mahindra CIE Automotive (MAHAUT) | 188
Buy
| 260
12 months
37%
Amalgamation process nears completion!
What’s Changed?
Target
Unchanged
EPS FY16E
Unchanged
EPS FY17E
Unchanged
Rating
Unchanged
Quarterly Performance
(| Crore)
Revenues
EBITDA
EBITDA (%)
Q2FY15
Q2FY14
YoY
94.4
13.1
13.9
94.9
10.5
11.1
-0.5
25.2
285 bps
4.6
2.1
120.8
Reported PAT
Q1FY15
QoQ
98.6
-4.3
16.0
-17.9
16.2 -230 bps
6.6
-30.2
Key Financials
| Crore
FY14E
FY15E
FY16E
FY17E
Net Sales
EBITDA
5,535
453.1
5,798
622.9
6,244
781.2
6,804
930.7
Net Profit
EPS (|)
39.6
1.2
201.0
6.2
331.1
10.3
448.1
13.9
All financial numbers incorporate merger assumption completed
Valuation summary
FY14E
FY15E
FY16E
FY17E
P/E (x)
153.4
30.3
18.4
13.6
Target P/E (x)
EV/EBITDA (x)
210.8
17.0
41.6
11.9
25.2
9.3
18.6
7.4
P/BV (x)
2.5
2.4
2.4
2.2
RoNW (%)
1.7
8.0
12.8
16.1
RoCE (%)
3.9
7.8
11.9
15.9
All financial numbers incorporate merger assumption completed
Stock data
Particular
Amount
Market Capitalization (| Crore)
Total Debt (FY14E) (| Crore)
| 6079.2
| 1657.8
Cash & Investments (FY14E) (| Crore)
| 32.3
EV (| Crore)
| 7704.7
52 week H/L (|)
Equity capital (| crore)
225/38
| 321.7
Face value (|)
| 10
All financial numbers incorporate merger assumption completed
Price performance (%)
Mahindra CIE Automotive Ltd
1M
3M
6M
12M
-14.1
21.1
63.1
348.8
Motherson Sumi Systems Ltd
-0.5
12.5
51.9
128.9
Bharat Forge Ltd
-7.9
10.7
79.5
175.6
Analyst
Nishant Vass
nishant.vass@icicisecurities.com
Venil Shah
venil.shah@icicisecurities.com
ICICI Securities Ltd | Retail Equity Research
• Mahindra CIE Automotive’s (MCI) Q2FY15 results continued to reflect
the margin improvement, especially in the European business, which
saw margins rise to 7.2% (3.4% in Q1FY15, 3.1% in Q2FY13) led by
product rationalisation and cost reduction initiatives. Topline for the
European business at €63 million, however, was lower by ~7%
• India business topline at | 94 crore was flat YoY while the EBITDA
margin improved to 13.9% (11.1% in Q1FY14)
• The management has indicated that the amalgamation process for all
the companies is likely to conclude in the next five or six weeks
Strong Tier-1.5 supplier to global OEMs…The TILA factor!
MCI is a strong tier-1.5 supplier to global OEMs, i.e. a supplier of critical
components to OEMs. With global car makers moving towards
homologation with modular architecture, global platforms and standards,
automotive suppliers need to meet the increasing intensiveness. We
believe MCI’s greatest advantage is in its significant geographic spread
that has the “there is little alternative” (TILA) factor associated with it.
With a presence ranging across Europe, Latin America (LatAm), North
America Free trade Agreement (Nafta) region and Asia, the alliance
produces a company with limited competition in terms of presence.
CIE’s turnaround path key; demand growth the joker in the pack!
CIE’s management has laid out clear plans for the turnaround of hot spots
in MCI. The first one targeted is Mahindra Forgings Europe (MFE), for
which CIE had targeted a 600 bps EBITDA margin increase on an overall
basis in 36 months. The results of CIE’s efforts are already bearing fruit
with margins reaching 7% this quarter. CIE’s intense cost focus and
decentralised management, bodes well for the sustenance of this
turnaround. An added kicker may emerge in the form of
demand/economic recovery in both Europe & India, which may enhance
the earnings lever even further.
Past rendered irrelevant as bright future beckons! CIE focus strong…
We feel MCI provides a rare, unique Indian auto component play, which
has a global footprint with global promoters along with massive
turnaround possibilities in the company. Post the consummation of the
deal, CIE would hold 51% in the entity while Mahindra would directly hold
~20%. MCI has a presence across both commercial vehicles and
passenger vehicles with complementary strengths of dual parents. With
cost controls and economic recovery playing out, we expect utilisation
levels to improve leading to EBIT margins rise to ~8% and RoCE
expansion to ~14.5% in FY17E. CIE’s track record on turnarounds via cost
control and high focus on financial metrics gives us confidence.
Possible multiplier in financials to reflect in price, multiples; reiterate BUY
Mahindra CIE Auto is a unique case of valuation considering the massive
turnaround possibilities. We expect utilisation levels to improve leading to
EBIT margins rising to 9.0% and RoCE expansion to ~15.9% in FY17E.
We expect a significant increase in dividend payouts to ~40% in line with
CIE’s philosophy of high dividend payouts (~40-50%). CFOs are also
likely to balloon to ~| 700-800 crore (FY16E-17E). We value MCI on a
combinational basis of PE and EV/EBITDA, considering it is a turnaround
company and upgrade our multiples in line with multiple expansion for
peers in the forging space. Our target price of | 260 implies an upside of
~37%. We continue to recommend BUY.
Variance analysis- Standalone
Q2FY15 Q2FY15E Q2FY14 YoY(%)
Q1FY15 QoQ(%)
94.4 100.4
94.9
-0.5
98.6
-4.3
48.5
52.4
51.6
-6.1
51.4
-5.7
Total Operating Income
Raw Material Expenses
Employee Expenses
Other expenses
10.0
22.8
9.9
21.4
8.8
24.1
14.4
-5.2
9.9
21.4
EBITDA
EBITDA Margin (%)
13.1
13.9
16.8
16.7
10.5
11.1
25.2
285 bps
Other Income
Depreciation
1.2
6.7
2.4
6.5
3.3
7.1
-62.3
-6.0
1.4
6.1
-10.3
8.8
Interest
PAT
1.6
4.6
1.7
7.6
0.1
2.1
1,768.3
120.8
1.7
7
-6.5
-30.2
EPS
0.5
0.2
0.2
120.8
0.7
-30.2
Key Metrics
Mahindra Forgings India Revenues(|
crore)
94
100
95
-0.5
99
-4.3
Mahindra Forgings Europe
Revenues(| crore)
512
540
550
-7.0
549
-6.8
Mahindra Forgings India OPM (%)
Mahindra Forgings Europe OPM(%)
13.9
7.2
16.7
6.0
11.1 281 bps
3.0 421 bps
Comments
Lower than estimated revenues in standalone business
Higher increase in RM costs impacting gross margins
1.5
6.7
16.0
-17.9
16.2 -230 bps
16.3 -245 bps
3.4 388 bps
Slightly lower than anticipated margin performance on account of
product mix
Euro revenue declined 7% YoY to €63 million
The QoQ improvement in margins is primarily due to maintenance
shutdowon in Q1, which had cost €2.8 million
Source: Company, ICICIdirect.com Research
Change in estimates
FY16E
(| Crore)
Revenue
EBITDA
EBITDA Margin (%)
Old
6,398
781
12.2
FY17E
New % Change
6,398
0.0
781
12.2
0.0
0 bps
Old
6,969
New % Change
6,969
0.0
931
13.4
931
13.4
0.0
0 bps
PAT
331
331
0.0
448
448
0.0
EPS (|)
10.3
10.3
0.0
13.9
13.9
0.0
Comments
Performance in line with estimates on topline front
Strong recovery in MFE operational performance
Strong turnaround also led by reduction in interest costs
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
Assumptions
Current
FY14E
FY15E
Earlier
Comments
FY16E
FY17E
FY16E
FY17E
Revenue (| crore)
Forgings
3,819
3,949
4,134
4,329
4,134
4,329
Castings
Stampings
517
723
580
781
662
909
781
1,076
662
909
781
1,076
Gears
552
581
636
684
636
684
Composites
EBITDA margins(%)
50
52
57
65
57
65
Forgings
7.1
10.2
11.9
12.9
11.9
12.9
10.6
9.2
13.2
10.0
14.6
11.4
16.3
13.3
14.6
11.4
16.3
13.3
Gears
8.2
11.2
13.4
14.1
13.4
14.1
Composites
1.9
3.5
4.6
7.2
4.6
7.2
Castings
Stampings
Growth led by improvement in both European and Indian forgings business
Improvement in automotive demand to aid the gear's business post growth
Strong possibility of margin expansion as product profile improves and on benefit
of operating leverage
Strong possibility of margin expansion as product profile improves and on benefit
of operating leverage
Expansion of margins to be led to operating leverage
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
ICICI Securities Ltd | Retail Equity Research
Page 2
Key conference call takeaways
ICICI Securities Ltd | Retail Equity Research
ƒ
The outlook of the India forging business is positive with
improving demand expectation from passenger vehicles likely to
aid both volumes as well as margins
ƒ
The management expects a further improvement in operating
performance at MFE as the process optimisation measures
initiated by CIE start bearing fruit. The management has said there
would be a reduction in personnel costs as more processes are
automated. Currently, personnel costs are ~30% of net sales,
which is significantly higher than CIE’s other manufacturing
facilities
ƒ
The management has indicated that the amalgamation process
for all companies is likely to conclude in the next five or six weeks
with the date for the next hearing on October 31, 2014
ƒ
The European business is likely to improve, going ahead, as the
economic situation improves in Europe and in Brazil, China and
Russia, which are Europe’s major trading partners in terms of CV
imports
ƒ
The management has also communicated that lower margin
products have seen re-negotiations to improve overall margins
ƒ
The management also reiterated its stance of integrating CIE’s
other forging facilities in Brazil, China and Mexico on attainment
of certain pre-fixed financial metrics are met by MCI
Page 3
Company Analysis
MFE remains the hotspot in the consolidated MCI entity registering an
EBITDA loss of ~| 3 crore (€-0.4 million) for FY13. One of the major
challenges in the operating performance is the significantly high
employee costs. Our analysis has highlighted the fact that cultural
differences between the German entity and erstwhile promoters M&M
had led to a lack of reduction in these costs even as sales witnessed
declines since FY09, thus causing sharp declines in EBITDA.
In comparison, CIE’s management, considering its European expertise,
has laid out a clear path towards the reduction of the same. The first signs
of the same are visible. CIE is looking to review the performance of the
top level management as part of the employee cost reduction process.
The company is looking to reduce its temporary workforce, which is at
>200 employees for a total employee base of 1300 employees. This
could possibly lead to minimum cost savings of €8-10 million (~| 60-80
crore).
In the first phase of turnaround since H2FY14 the focus has been on
process improvements and efficiencies in terms of production facilities.
This has yielded immediate results as margins have improved to ~7% in
Q2FY15. In terms of example, the Schöneweiss facility 12,800 T press has
witnessed nearly ~30% increase in productivity (21k parts/month run rate
in Q4FY14)
Thus, on the EBITDA front, we expect MFE to witness an EBITDA
improvement to ~| 250 crore by FY17E with EBITDA margins of ~10.1%
during the same.
Exhibit 1: What’s dragging down performance?
Contribution to
consolidated(%)
FY13P
Geography
Europe
India
Companies
EBITDA
margin (%) Revenue
EBITDA
Mahindra Forgings Europe
1,702.1
-2.7
-0.2
34.4
-0.8
CIE Forgings
41.9
1,042.4
139.0
13.3
21.1
Metalcastello
402.2
44.9
11.2
8.1
13.5
Mahindra Forgings India
394.7
43.0
10.9
8.0
13.0
Mahindra Gears India
105.8
10.9
10.3
2.1
3.3
Mahindra Hinoday
478.8
25.8
5.4
9.7
7.8
MUSCO (Stampings)*
766.4
69.1
9.0
15.5
20.8
50.3
1.8
3.6
1.0
0.5
4,942.7
331.9
6.7
100.0
100.0
Mahindra Composites
Total
Revenues (|
crore)A(| crore)
Mahindra CIE Automotive
Source: Company, ICICIdirect.com Research MFE is biggest hotspot, Hinoday second largest followed by Composite
All financial numbers incorporate merger assumption completed
Revenue growth to be modest as Europe & Indian challenges remain
The Mahindra CIE entity post merger completion will have ~60:40 ratio
towards geographic mix outside/within India. The revenue growth
possibilities on favourable macros in Europe and India remain key upside
risks. However, we have factored in moderate revenue growth of ~6%
CAGR (FY13-17E) in the European business while for India we are building
in a marginal recovery vis-à-vis industry consensus at ~10% CAGR
(FY13-17E). On an overall basis, we expect the machining and export mix
to improve ~500 bps from ~20%, 5%, respectively. The strongest
revenue segmental drivers would continue to remain the forgings entity
ICICI Securities Ltd | Retail Equity Research
Page 4
(~8% CAGR in FY13E-17E) followed by gears, castings, stampings
business (8%, 13%, 9% CAGR in FY13E-17E, respectively). On an overall
basis, we expect revenue growth to be 4.7%, 7.6% and 8.9% for FY15E,
FY16E and FY17E, respectively.
Exhibit 2: We build modest revenue growth at 8% CAGR in FY13E-17E
8,000
14
12.0
7,000
12
4.8
6,804
8
6
4
6,244
2,000
5,535
3,000
7.7
5,798
4,000
10
(%)
9.0
5,000
4,943
(| crore)
6,000
2
1,000
-
FY13P
FY14E
FY15E
Net Sales
FY16E
FY17E
% increase
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
EBITDA margins to rise as CIE philosophy takes over!
Looking at the history of CIE’s acquisitions it is evident that CIE’s
management has a very strong focus on all kinds of costs ranging from
contribution of products to corporate overheads. Corporate overheads
stand at less than 1% of sales. CIE focuses on the decentralised
management of various plants, which are independently given targets of
RoCEs and EBIT margins. We believe the overall group turnaround may
face some outlier roadblocks due to which we expect the management’s
target of ~12% EBITDA margin to be achieved in FY17E. We, however,
expect progression of margins to be smooth on the way (10.5% in FY15E,
12.2% in FY16E and 13.4% in FY17E).
Exhibit 3: EBITDA margin to grow strongly over FY13P-17E!!
16
1,000
13.4
900
12.2
800
200
623
328
300
931
781
6.5
400
8
(%)
10
8.0
6
4
453
(| crore)
600
500
12
10.5
700
14
2
100
-
FY13P
FY14E
EBITDA
FY15E
FY16E
FY17E
EBITDA Margin (%)
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
Strong working capital controls as CFO/EBITDA strong!
CIE’s philosophy of decentralised operations not only minimises
corporate overhead but also makes the plant manager responsible for all
operational/financial decisions. This ensures high accountability and tight
ICICI Securities Ltd | Retail Equity Research
Page 5
control on costs as well as better working capital management. CIE’s
CFO/EBITDA stands at ~90%. Currently, MCI’s CFO/EBITDA stands at
85%. We expect a further improvement in the working capital cycle,
which is likely to further boost operating cash flows.
Exhibit 4: Strong CFO/EBITDA
900
128
105.7
800
700
108
90.8
88.6
88.7
88.0
88
479
300
100
(%)
68
48
298
200
693
400
819
500
552
(| crore)
600
28
8
FY13P
FY14E
FY15E
CFO
FY16E
FY17E
CFO/EBITDA
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
Large room for non-linear profit growth!
The operating and financial revival of hotspots like MFE can have a
significant impact on the profitability of the overall business. We expect
this to happen, albeit at a pace slower than being targeted by CIE’s
management. We expect profits after MI (PE stake in Metalcastello) to
gallop to ~| 448 crore in FY17E with PAT margins improving ~570 bps
from FY14E-17E to 6.4%. The path to this improvement could see FY15E,
FY16E witnessing PAT margins of 3.4%, 5.2%, respectively. We expect
PAT to rise at ~147% CAGR in FY14E-17E and ~50% CAGR in FY15E17E.
Exhibit 5: Profit to start pumping in as operational improvement kicks in!!
6.4
500
5.2
400
100
1
39.6
(74.4)
-1
(1.5)
FY13P
3
2
-100
-200
4
(%)
0.7
448.1
200
331.1
3.4
201.0
(| crore)
6
5
300
-
7
-2
FY14E
FY15E
PAT
FY16E
FY17E
PAT Margin (%)
Source: Company press release, ICICIdirect.com Research All financial numbers incorporate merger assumption
completed
ICICI Securities Ltd | Retail Equity Research
Page 6
Key risks & concerns:
•
Issues relating to management collaboration & cultural integration
One of the key issues in relation to any merger or acquisition is
management bandwidth, roadblocks in integration of management
philosophies and work style that could be a key concern. The reason
we feel this is a major concern stems from the fact that M&M even
after acquiring MFE could not successfully reduce costs in Germany.
Cultural roadblocks were one of the reasons for the same, which we
believe would not be a major issue with CIE’s European nature.
• Sharp declines in revenues in Europe, India delay turnaround
The European and Indian automotive market has been weak to say
the least in the last couple of years. Though we have seen some good
pre-buying effect for the CV segment in Europe on account of
emission norms change the consistency of the same is a risk. In India,
the automotive space for the last two years has seen moderate
growth due to high fuel prices and interest rates along with weak
economic growth. If the macro scenario worsens then that can cause
a delay in turnaround as revenue stability is essential.
• Retrenchment of top management in India
Though we have highlighted and lauded CIE’s management
philosophy of de-centralising power and reducing corporate
overheads we feel India, as a country, is unique. Considering CIE’s
nascent knowledge there should not arise any situation of top
management removal or discontent as the domestic understanding of
the M&M management is second to none.
Outlook and valuation
Mahindra CIE Auto is a unique case of valuation considering the massive
turnaround possibilities in the company and we are factoring in the same.
We expect the turnaround to be significant, as according to our estimates
there will be non-linear profit growth at ~145% CAGR in FY14E-17E. MCI
would find a way to increase efficient and profitable utilisation with low
capex over the next two or three years. CFOs are expected to balloon to
~| 800 crore (FY16E-17E). We expect a significant increase in dividend
payouts to ~40% in line with CIE’s philosophy of high dividend payouts
(~40-50%).
We feel MCI provides a rare, unique Indian auto component play, which
has a global footprint with global promoters. We expect strong business
prospects to fructify into a turnaround (PAT:-FY13 loss of ~| 92 crore to
FY17E profit of ~| 450 crore), which would lead to a debt reduction of
~| 650-700 crore till FY17E (FY17E-debt/EBITDA: 1.2x, debt/equity: 0.4x
FY13- debt/EBITDA: 5.1x, debt/equity: 1.0).
We forecast ~7% and ~145% CAGR in revenues and earnings,
respectively, over FY14E-17E and value the stock on a combination of PE
and EV/EBITDA multiples to arrive at a target price of | 260. We maintain
our BUY recommendation on the stock with an upside potential of 37%.
We have valued MCI as highlighted earlier on a combinational basis of PE
and EV/EBITDA, considering it is a turnaround company. Also, we want to
be more prudent on possibly valuation methodology anomalies.
Currently, the stock is trading at ~14x PE FY17E, at a discount to
domestic peers with global scale like Bharat Forge and Motherson Sumi
possibly on account of uncertainty of the financial turnaround and actual
numbers post merger. The parent company CIE Automotive SPA,
Autometal BZ also trades at much higher valuations considering the
ICICI Securities Ltd | Retail Equity Research
Page 7
strong financial metrics. We believe the same would pan out for MCI in
the longer term as the market starts to factor in the pace of the
turnaround. The only peer with a similar business profile is Bharat Forge,
which is much more stable and mature in terms of financial profile.
Though we have seen even ~40x kind of current multiples for the same
during early 2000s when it was attaining scale and profitability, we have
been conservative in ascribing such turnaround multiples to MCI.
However, we completely believe the fact that as performance flows
through in the coming quarters we can see a strong re-rating in the stock
post completion of the merger.
Exhibit 6: Turnaround valuations
Particulars
Details
Comments
PE basis
PAT after MI FY17E (| crore)
448
Cost of equity (%)
13.0
As MCI's consolidated history, relevant now, is unknown so we have ignored historical beta. We have
ascribed it 30% higher beta of ~1.3x to BFL
PV of FY17E PAT after MI (| crore)
330
The philosophy behind discounting FY17E to present value emerges from the fact that we would want to
do justice to complete turnaround possibilities of the company. Hence, we would rather bank upon a
clearer earnings picture than on multiples
Bharat Forge Current PE (x) (Trailing 12-month basis)
35.0
Discount to Bharat Forge (%)
25
Implied Trailing PE (x) MCI
26.1
Target Market Capitalisation
8619
Implied Target price post merger
268
We understand turnaround multiples have the tendency of going sharply up in expectations of earnings.
We have seen that in case of BFL during early 2000s when it was gaining size. However, conservatively, we
have gone ahead and discounted the muliples on mature peers
EV/EBITDA basis
EBITDA FY17E (| crore)
931
Debt FY17E (| crore)
990
Cash FY17E (| crore)
146
Cost of debt (%)
7.5
Cost of equity (%)
13.0
As MCI's consolidated history, relevant now, is unknown so we have ignored historical beta. We have
ascribed it 30% higher beta of ~1.3x to BFL
WACC (%)
10.0
The beauty of cheaper cost of capital emerges here as even with a debt inclined capital structure WACC for
MCI is lower than WACC for BFL
PV of FY17E EBITDA (| crore)
733
PV of Debt FY17E (| crore)
780
PV of Cash FY17E (| crore)
Bharat Forge Current EV/EBITDA (x) (Trailing 12-month
basis)
115
16
MCI has mainly ~90% debt based in Europe, which is serviced in local currency, thereby no hedging risk
Discount to Bharat Forge (%)
25
Implied Trailing EV/EBITDA (x) MCI
12
Implied EV (| crore)
Target Market Capitalisation
8753
8089
Implied Target price post merger
Final combination Target price
251
260
The philosophy behind discounting FY17E to present value emerges from the fact that we would want to
do justic to complete turnaround possibilities of the company. Hence, we would rather bank upon a clearer
earnings picture than on multiples
We understand turnaround multiples have the tendency of going sharply up in expectations of earnings.
We have seen that in case of BFL during early 2000s when it was gaining size. However, conservatively, we
have gone ahead and discounted the muliples on mature peers
We have given an equal weightage to both methods
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
ICICI Securities Ltd | Retail Equity Research
Page 8
Exhibit 7: Two year forward rolling PE
240
200
(|)
160
120
80
40
Price
17x
13x
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Oct-12
Jan-13
0
9x
5x
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
Exhibit 8: Valuation
FY13
FY14E
FY15E
FY16E
FY17E
Sales
Growth
EPS
Growth
PE
EV/EBITDA
RoNW
RoCE
(| cr)
4942.7
(%)
(|)
-2.3
(%)
(x)
0.0
(x)
23.3
(%)
-4.5
(%)
1.6
5,535.0
5798.0
6,243.8
6804.3
12.0
4.8
7.7
9.0
1.2
6.2
10.3
13.9
NA
407.0
64.7
35.3
153.4
30.3
18.4
13.6
17.0
11.9
9.3
7.4
1.7
8.0
12.8
16.1
3.9
7.8
11.9
15.9
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed
ICICI Securities Ltd | Retail Equity Research
Page 9
Company snapshot
300
Target price: | 260
250
200
(|)
150
100
50
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
0
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date
Jun-08
Event
Mahindra Forging's acquisitions in Europe, including Schöneweiss, start to integrate into the business
Apr-09
The company reports annual losses on the back of sudden downturn in the European business
Oct-09
Nov-09
Domestic business also suffers on the back of Lehmann crisis
Mahindra Forgings invests in doubling installed capacity in the forgings entity in India to 80,000 MT
Mar-10
Receives best supplier awards from Volvo Eicher, Kirloskar Oil Engines
Jul-10
Company starts to report better financials compared to previous years
Sep-11
Third crankshaft machining line installed, new makino installed for tool room in die production
Sep-13
CIE Automotive Spain and M&M agree to a merger between Mahindra Systech and CIE Forgings Europe. M&M acquires 13.5% stake in CIE SPA for €6 while
retaining 20% direct ownership in new company Mahindra CIE automotive. CIE post merger will have ~51% stake in the company
Jan-14
CIE's efforts in turning around Mahindra Forgings Europe start to reflect fruitfully as MFE starts to clock ~6-8% EBITDA
Jun-14
All parties ranging from shareholders to creditors give approval to the merger. Final court approval pending
Oct-14
Management indicates completion of the merger process likely by early December
Source: Company, ICICIdirect.com Research
Top 10 Shareholders
Shareholding Pattern
Rank Name
Latest Filing Date
% O/S
1
2
3
Participaciones Internacionales Autometal DOS, S. L.
Sundaram Asset Management Company Limited
Nainesh Trading & Consultancy, L.L.P.
30-Sep-14 78.25
30-Sep-14
2.14
30-Sep-14
1.96
4
5
6
BlackRock Asset Management North Asia Limited
UTI Asset Management Co. Ltd.
DSP BlackRock Investment Managers Pvt. Ltd.
30-Sep-14
31-Jul-14
30-Sep-14
7
8
SBI Funds Management Pvt. Ltd.
Mahindra Group
9
10
Luthra (Hemant)
Ramaswami (Krishnan)
Position (m) Change (m)
(in %)
Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
73.0
2.0
1.8
0.00
-0.65
0.00
Promoter
FII
DII
52.9
6.8
0.5
79.4
5.1
0.5
79.4
3.4
4.0
79.3
2.0
5.6
78.6
2.9
5.5
1.8
1.03
0.68
1.7
1.0
0.6
-0.13
0.00
0.22
Others
39.8
15.0
13.2
13.2
13.1
31-Aug-14
30-Sep-14
0.52
0.32
0.5
0.3
0.35
0.00
31-Jul-14
22-Sep-14
0.05
0.05
0.1
0.1
0.05
0.05
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys
Investor name
SBI Funds Management Pvt. Ltd.
DSP BlackRock Investment Managers Pvt. Ltd.
Sells
Value
Shares
Investor name
1.01m
0.76m
0.35m
0.22m
Sundaram Asset Management Company Limited
BlackRock Asset Management North Asia Limited
Luthra (Hemant)
0.17m
0.05m
Ramaswami (Krishnan)
0.13m
0.05m
Shankar (Krishnan)
0.10m
0.03m
Value
Shares
-2.25m
-0.43m
-0.65m
-0.13m
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 10
Financial summary
Profit and loss statement
(Year-end March)
Total operating Income
Growth (%)
Raw Material Expenses
Employee Expenses
Other Expenses
Total Operating Expenditure
EBITDA
| Crore
FY14E
5,675.5
Interest
Depreciation
PBT
Total Tax
PAT before Minority Interest
Minority Interest
PAT after Minority Interest
EPS (|)
5,943.8
FY16E
6,397.8
FY17E
6,968.8
(Year-end March)
Profit after Tax
Add: Depreciation
| Crore
FY14E
FY15E
FY16E
39.6
201.0
331.1
FY17E
448.1
291.3
298.6
308.7
318.5
12.1
4.7
7.6
8.9
2,798.7
2,908.8
3,102.1
3,361.7
(Inc)/dec in Current Assets
-133.5
-103.9
-124.8
-138.2
1,285.6
Inc/(dec) in CL and Provisions
151.0
56.3
93.6
117.4
1,390.8
CF from operating activities
348.4
451.9
608.6
745.7
6,038.1
(Inc)/dec in Investments
-600.0
50.0
50.0
50.0
(Inc)/dec in Fixed Assets
-441.2
-150.7
-223.5
-208.6
0.0
0.0
0.0
0.0
-158.6
1,250.0
1,173.8
5,222.5
453.1
1,194.2
1,218.0
5,321.0
1,226.5
1,288.0
5,616.6
622.9
781.2
930.7
37.5
25.4
19.1
Others
23.7
27.4
31.0
30.2
CF from investing activities
-1,041.2
-100.7
-173.5
130.6
99.8
84.6
73.0
Issue/(Buy back) of Equity
0.0
0.0
0.0
0.0
-15.0
-90.5
-264.4
-313.3
-150.5
Growth (%)
Other Income
FY15E
Cash flow statement
291.3
298.6
308.7
318.5
Inc/(dec) in loan funds
55.0
251.9
418.9
569.4
Dividend paid & dividend tax
0.0
-75.3
-112.9
124.7
Others
569.4
-99.8
-234.6
-173.0
CF from financing activities
554.4
-265.6
-611.9
-636.8
48.6
64.2
93.7
6.4
187.7
325.1
444.7
-33.3
-13.2
-5.9
-3.4
Net Cash flow
-81.0
172.2
-88.1
29.9
Opening Cash
113.3
32.3
204.4
116.3
Closing Cash
32.3
204.4
116.3
146.3
39.6
201.0
331.1
448.1
1.2
6.2
10.3
13.9
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger
assumption completed
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger
assumption completed
Balance sheet
Key ratios
(Year-end March)
| Crore
FY14E
FY15E
FY16E
FY17E
Liabilities
Equity Capital
(Year-end March)
FY14E
FY15E
FY16E
FY17E
Per share data (|)
321.7
321.7
321.7
321.7
1.2
6.2
10.3
13.9
Reserve and Surplus
2,063.7
2,189.4
2,257.6
2,455.1
Cash EPS
10.3
15.5
19.9
23.8
Total Shareholders funds
2,385.4
2,511.1
2,579.2
2,776.8
BV
74.2
78.1
80.2
86.3
Total Debt
1,657.8
1,567.3
1,302.9
989.6
DPS
0.0
2.0
3.0
4.0
116.7
103.5
97.6
94.2
Cash Per Share
1.0
6.4
3.6
4.5
4,159.9
4,181.8
3,979.7
3,860.6
EBITDA Margin
8.0
10.5
12.2
13.4
Gross Block
5,783.8
5,964.5
6,188.0
6,396.6
PAT Margin
0.7
3.4
5.2
6.4
Less: Acc Depreciation
2,930.7
3,229.3
3,538.0
3,856.5
Inventory days
43.0
45.0
45.0
44.0
Net Block
2,853.1
2,735.2
2,650.0
2,540.1
Debtor days
46.5
46.5
46.5
46.5
60.0
30.0
30.0
30.0
Creditor days
42.0
42.0
42.0
42.0
Minority Interest
Total Liabilities
Assets
Capital WIP
Total Fixed Assets
EPS
Operating Ratios (%)
2,913.1
2,765.2
2,680.0
2,570.1
Investments
759.0
709.0
659.0
609.0
RoE
1.7
8.0
12.8
16.1
Inventory
652.1
714.8
769.8
820.2
RoCE
3.9
7.8
11.9
15.9
Debtors
705.1
738.6
795.4
866.8
RoIC
4.0
8.3
12.4
16.6
Other current assets
161.3
168.9
181.9
198.2
Valuation Ratios (x)
P/E
153.4
30.3
18.4
13.6
17.0
11.9
9.3
7.4
Cash
Total Current Assets
Creditors
Return Ratios (%)
32.3
204.4
116.3
146.3
1,550.7
1,826.8
1,863.5
2,031.6
636.9
667.2
718.5
783.0
EV / Net Sales
1.4
1.3
1.2
1.0
EV / EBITDA
Provisions
145.0
155.2
170.7
189.9
Market Cap / Sales
1.1
1.0
1.0
0.9
Other Current Liabilities
332.1
347.9
374.6
408.3
Price to Book Value
2.5
2.4
2.4
2.2
1,114.0
1,170.2
1,263.8
1,381.2
Debt/Equity
0.7
0.6
0.5
0.4
Current Ratio
1.4
1.6
1.5
1.5
Quick Ratio
0.8
1.0
0.9
0.9
Total Current Liabilities
Net Current Assets
Application of Funds
436.8
656.6
599.7
650.4
4,159.9
4,181.8
3,979.7
3,860.6
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger
assumption completed
.
ICICI Securities Ltd | Retail Equity Research
Solvency Ratios
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger
assumption completed
Page 11
ICICIdirect.com coverage universe (Auto & Auto Ancillary)
CMP
Sector / Company
Amara Raja (AMARAJ)
Apollo Tyre (APOTYR)
Ashok Leyland (ASHLEY)
Bajaj Auto (BAAUTO)
Balkrishna Ind. (BALIND)
(|)
M Cap
TP(|) Rating
EPS (|)
P/E (x)
EV/EBITDA (x)
RoCE (%)
RoE (%)
(| Cr) FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E
629
690
Buy
10,735
21.5
26.3
34.5
29.2
23.9
18.2
17.3
13.0
9.8
34.3
34.1
34.2
27.0
26.0
26.4
218
275
Buy
10,966
20.0
22.0
25.0
10.9
9.9
8.7
6.1
5.8
5.3
23.7
20.3
18.7
22.0
19.7
18.5
46
32
Hold
12,981
0.1
0.2
1.5 415.7 196.1
31.5
84.5
19.7
10.6
NM
2.7
8.7
0.7
1.3
7.6
2,523
2,571
Hold
72,999 112.1 110.0 150.5
16.8
12.8
12.0
9.2
40.6
37.5
40.0
33.8
29.6
34.2
748
7,225
50.5
54.8
22.5
22.9
870
Buy
67.0
15.0
13.8
11.3
10.8
8.9
6.9
17.2
17.1
19.7
25.9
17.2
17.1
Bosch (MICO)
15,005 17,500
Buy
47,116 281.8 366.3 492.2
52.2
40.1
29.9
33.8
27.1
19.9
14.1
16.0
18.2
14.1
15.8
19.5
Eicher Motors (EICMOT)`
11,930 13,000
Buy
32,222 145.9 262.9 384.0
29.5
81.7
45.4
31.1
46.1
21.7
14.3
18.3
25.1
29.7
19.2
26.9
Escorts (ESCORT)*
164
103
Sell
1,955
20.5
11.9
17.1
5.7
9.9
6.8
4.1
5.9
4.4
13.7
8.3
10.7
13.4
7.3
9.7
Exide Industries (EXIIND)
159
220
Buy
13,528
5.7
7.6
10.6
27.8
20.8
15.0
15.2
11.9
8.7
18.5
21.7
25.6
13.1
15.6
18.7
Hero Mototcorp (HERHON)
JK Tyre & Ind (JKIND)
3,082
3,078
Hold
61,548 105.6 145.8 185.0
29.2
21.1
16.7
15.1
16.9
15.6
43.4
51.0
54.5
37.7
42.4
43.7
489
610
Buy
2,008
58.0
85.4 105.7
8.4
5.7
4.6
4.7
4.4
3.7
19.2
20.0
21.3
24.0
25.9
24.8
M&M (MAHMAH)
Mahindra CIE (MAHAUT)*
1,262
184
1,322
260
Hold
Buy
74,498
5,980
56.5
1.2
67.8
6.2
72.7 22.3
10.3 149.3
18.6
29.5
17.3
17.9
15.5
17.0
12.3
11.9
11.0
9.3
18.5
1.7
20.4
8.0
19.8
12.8
22.1
3.9
20.2
7.8
18.6
11.9
Maruti Suzuki (MARUTI)
3,180
2,450
Hold
96,101
92.1 105.1 144.1
34.5
30.2
22.1
13.4
11.8
8.8
13.3
13.5
16.9
13.3
13.4
15.9
Motherson (MOTSUM)
403
512
Buy
35,527
8.7
15.1
22.7
46.4
26.6
17.7
16.0
10.0
7.5
18.5
29.3
33.4
25.9
35.4
38.9
Tata Motors (TELCO)
507
560
Buy
154,192
43.3
61.6
73.5
10.3
7.3
6.1
4.6
4.0
3.4
21.7
23.2
23.2
21.3
23.7
22.5
3,741
4,750
Buy
7,108
62.0
63.8 127.1
60.4
58.6
29.4
41.3
35.0
19.9
15.6
14.1
22.3
17.7
17.2
26.8
Wabco India (WABTVS)
Source: Company, ICICIdirect.com Research * All financial numbers incorporate merger assumption completed
ICICI Securities Ltd | Retail Equity Research
Page 12
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
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ICICI Securities Ltd | Retail Equity Research
Page 13