Mahindra CIE Automotive Ltd shares have lost nearly 7% on the NSE in the last two days. Of course, intense geopolitical tensions between Russia and Ukraine haven’t helped sentiments in stock markets, with benchmark indices falling nearly 3% in Thursday morning trade. Still, the fourth quarter results were not satisfactory, especially in terms of margins. The company follows a January to December fiscal year.
Consolidated earnings before interest, taxes, depreciation and amortization (Ebitda) margin declined 280 basis points (bps) to 9.8% in the year-on-year (year-on-year) quarter due to higher commodity costs and operating leverage . A basis point is one hundredth of a point. This compares to analysts’ estimate of 12.7% at Motilal Oswal Financial Services Ltd.
In Q4, revenue grew 5% yoy to Rs 2,064 crore on the back of 10% yoy growth in India, partially offset by a 3% decline in Europe. Volume growth in the medium and heavy commercial vehicle segment supported the business in India to offset weak two-wheeler and tractor demand. Trade in Europe was severely affected by the semiconductor shortage.
More significantly, the pass-through of increased raw material costs fueled revenue growth. To that extent, it adversely affected the company’s profit margins in India and Europe business. Had the company not passed the increase in input costs, its fourth quarter sales in India and Europe would have declined by 5% and 19%, respectively.
“We have cut our CY22E EPS estimates by 3.5% to take into account margin pressures in both geographies and to maintain the CY23E EPS estimates,” analysts at Motilal Oswal said in a report.
Going forward, the additional capex and new capacities indicate that the order book in India is strong. Besides, strong demand in passenger vehicles and commercial vehicles (CV) segment is expected to drive growth. But the slowdown in the tractor and two-wheeler segment will continue. The company is seeing good demand for CVs in Europe.
Analysts at ICICI Securities said in a report, “With chip shortages gradually normalizing over the next three quarters, with a lower base for domestic tractors/2W in H1CY22, we expect growth and profitability from H2CY22 for Mahindra CIE. I look forward to a revival.” In India on the electric vehicle (EV) front, around 25%-30% of the new orders cater to EV and hybrid parts, especially for the two-wheeler segment. Similarly, in Europe, about 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 reduced our target multiplier to 13 times (from 15 times earlier) as recovery in capital efficiency is slower than expected,” said the Motilal Oswal report.
Never miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,