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MAHINDRA CIE 27TH AUG’18 COMPANY OVERVIEW Mahindra CIE Automotive Limited is an autocomponentssupplierwithpresenceinmanyTechnologies,whichincludeforgings,stampings,Castings, compositesandmagneticproducts.MCIE isauto-ancillary company, which supplies componentsto tier-1 and OEM (Original EquipmentManufacturers).MCIEissubsidiaryofCIEAutomotive.MCIEhastotal29plants20inIndiaand9inEurope.It operates in India, Italy, Spain, Lithuania, Germanyand UK. The company is focused on the automotivemarket,includingcars,utilityvehicles,commercialvehiclesandtractors.CIEAUTOMOTIVES.A
• CIEAutomotiveisparentalcompanyofMahindraCIE.
• CIEautomotivecurrentlyholds56.32%• Itdesignsandmanufacturescomponentsand
sub-assembliesglobally,in98productionsitesdistributedin90locations.• Itisin3strategicareas
(a) Automotive components (Aluminum, stamping, plastic, casting, machining, forging) tubeweldingpresentin9countries(b)Biofuels(plantsoperatinginSpain,Italy,presenceinBrazilandGuatemala)(c)Dominion,TechnologicalSolutionsandservices(plantsinSpain,Mexico,Brazil,ArgentinaandChile)INVESTMENT RATIONALE
(a) MahindraCIEhadcameupwithPhase-1andPhase-2strategy,asperiodofphase-1hasended.So,ifcompanyisabletoreduceitsdebt,followCIEStandardanddiversifyitstechnology(achievephase-2target)itwillbeanaddedadvantageforgrowthofitsbusinesswithincreaseincustomersandglobalreach.
(b) MCIE majority revenue comes from Forgings so it has huge opportunity to develop andexpand in other technology by providing diversified products in each technology andkeepingbalancebetweencustomer’srequirementanditsmanufacturing.
(c) SlowlyandsteadyMCIE ismakingorganicgrowth in India,majority revenuecomes fromEuropebutinlast4yearsrevenuegrowthinIndiaisfasterascomparetoEurope.So,MCIEhas lot of opportunities to expand and grow in India automotive market with low costbenefitandexcellentperformanceofBillForge(oneofsubsidiaryinIndia).
Parameters(InMillion)SalesRs62546EBITDARs8420EBITRs5612PATRs3584DEBTRs10173FCF-Rs317OPERATINGPROFITRs108.75ROE10.293%ROCE11.73%
56.32%
13.51%
13.32%
16.85%
SHAREHOLDINGPATTERNCIE
M&M
INSTITUTIONS
OTHERS
MERGER
The Mahindra group (India) and CIE Automotive S.A(Spain) signed global alliance agreementbetween Mahindra’s automotive component business(held under Systech sector) and CIEAutomotive(involvingalso itssubsidiaryAutometal)on June15,2013.Aspartof the transaction,CIE automotive – through one of its subsidiaries will acquire from Mahindra group a stake incompanies belonging to Systech automotive component business and CIE automotive willcontribute its forgingsbusinesses in Spain andLithuania and together consolidate all companiesunderMFLwhichwillberenamedasMahindraCIE.BENEFITS:CIE AUTOMOTIVE
• IthelpedCIEtoenterintonewlinebusinesslikegears,castingsetc.• Opportunitytoenterandexpanditsbusinessinemergingmarkets.
MAHINDRA GROUP
• Mahindra became 2nd largest shareholder of CIE Automotive (Spain)withminimum cashoutflow.
• StrengthenitspositioninIndiaandEurope.MAHINDRA CIE
• Beforealliance,thecompanyfacedlotofcompetitioninEuropemarket,soalliancehelpedindiversifyingindifferentautomobilecategories.
• MCIEhasaddedadvantageofgoodrelationshipofCIEwithUSandEuropeanclients(Ford,Renault,VWandGeneralMotorsCompany)accordingtorequirementsinIndia
RISK FACTORS
• Highly dependent on the growth and performance of Automotive manufacturers MCIEcomesundertier-1.5whichsuppliestoOEMandtier-1companies,demandforauto-componentsdependsongrowth,profitabilityandconsistentimprovementofOEMs.If1-2company(OEM)couldnotsurviveinmarketormovetootherauto-componentsupplierthenitwilldirectlyaffectrevenueofMCIE.
• High customer concentration, MCIE is highly dependent on few large customers from where majority of the revenue comes. M&M,TATAMotorsandMarutiSuzukicontributes50%ofMCIEsRevenueinIndiabusiness.MFEAGs2/3revenuecomesfromtop5largestcommercialvehiclemanufacturers.M&Mcontributes16%,Daimler12%,Renault5%shareintotalturnover.
• Hybrid and Electric Vehicles MCIEhasopportunitytoexpanditsbusinessinelectricandhybridvehicles,currentlytopcustomers(BMW,Daimler,Audi,VW)movingtowardshybridvehicles(requireselectricmotorandICE),currentlylessthan25%ofMCIE’sbusinesshassomethingtodowithICE.ButEuropehasshown38.7%growthinpassengerelectricvehicles(allelectriccars,electricutilityvansandplug-inhybrids)butMCIEisgoingtotake10yearswithtechnologyupgrade,ithasstarteditsresearchanddiscussingwithitscustomersondevelopment.Indiahavetargetofsalesof6-7millionsofhybridandelectricvehiclesby2020,soontechnologyisgoingtochangeinbotheconomybringingMCIEintomoreriskyposition.
BUSINESS OF THE COMPANY PROCESS OF SUPPLYING AUTO-COMPONENTS
TIER-3 TIER-2 TIER-1 OEM
• Suppliersofraworclosetorawmaterials.
• Tier-3suppliestoalllevelsincludingtier-1andOEM.
• Companiessupplypartsthatwindupincars,oftenexpertsintheirspecificdomain.
• Theysupplytolotofnon-automotivecustomers.
• MCIEcomesunderTier-1.5becauseitdirectlysellstoOEMaswellasasTier-1.
• Itsuppliesintheformofautomotivegradesystem.
• Automotivegradesystemincludesanti-locksystem,airbagsystem,4-wheelersteeringsystem.
• OriginalEquipmentManufacturers(OEM)isindesigning,marketingcarsandorderingpartsfromsuppliersandassemblingfinalproduct.
FORGINGSSTAMPINGS
GEARSCASTING MAGNETIC PRODUCTS COMPOSITES
TECHNOLOGY
PROCEESS CAPACITY
(INDIA)KEYPRODUCTS KEY
CUSTOMERSFORGINGS Forgingsis
manufacturingprocessinvolvingshapingofmetalusinglocalizedcompressiveforces.
135000tonsannually
Crankshaft,wheelhubs,steeringshafts,CVjoints
RenalutNissan,Marutisuzuki,Ford,Mahindra,TATA,nexteer,Hero,Honda,Fiat,KXN
STAMPINGS Stampingsisaprocessofplacingflatsheetmetalineitherblankorcoilformintostampingpresswhereatoolanddiesurfaceformsthemetalintonetshape.
185000tonsannually
SkinPanels,Chassis&structuralparts,SuspensionArms,FrontPanels
Mahindra,TATA,AshokLeyland,ScootersIndiaLimited
GERAS Agearorcogwheelisarotatingmachineparthavingcutliketeeth,orcogs,whichmeshwithanothertoothedparttotransmittorque.
8milliongearsandshaftsannually
Gears,shafts,helicalgears,shafts,weldedcomponents
Mahindra,Caterpillar,Eaton,CNHIndustrial
CASTINGS Castingisamanufacturingprocessinwhichaliquidmaterialisusuallypouredintoamold,whichcontainshollowcavityofdesiredshape,andthenallowedtosolidify.
55000tonsannually
Crankshaft,TurbineHousing,DifferentialHousing
Hyundai,DANA,Ford,Mahindra,Honewell,JCB,CNHIndustrial
MAGNETICPRODUCTS
6oootonsannually
SoftandHardMagnets
Denso,MITSUBA,Varroc,Comstar,Sumida,InTica
COMPOSITES It’samaterialmadefrom2ormoreconstituentmaterialswithsignificantly
10000tonsSMC4000tonsDMC
Mahindra,Volvo,Scania,TVS
FrontLID,Crashshields-fueltanks,Electricboxtoptray,Front
differentphysicalorchemicalpropertiesthatwhencombined,produceamaterialwithcharacteristicsdifferentfromtheindividualcomponents.
Bumper
APPLICATION OF TECHNOLOGY AND ITS COMPONENTS CARSAND
UTILITYVEHICLES
MEDIUMANDHEAVYCOMMERCIALVEHICLES
AGRICULTUREANDOFF-ROAD
TWO-WHEELERS
FORGINGS Crankshaft,knuckles/stubaxles
ForgedCamshafts,stubaxles,springsaddles
ForgedConnectingRod,stubaxles,frontaxlesupport,links,trunionbracket,liftarm,rockerarm,topplingcrank,crankshaft
STAMPINGS BodyinWhite-stampings
StampedCabinComponents
CastHubs,Differentialandtransmissiongears,planetarycarrier,hood,fenders,bonnet,footplates,frontgrill
GEARS Enginegears,gears,shafts
EngineGears Transmissiongearandshafts
CASTINGS TurbineHousing,ExhaustManifold,synchrohubs,differentialhousing,brakecalipers
Hubs,DifferentialHousing,CarrierHousing,TurboHousing
CastExhaustManifolds,Differentialhousing,crankshaft
MAGNETICPRODUCTS
PassiveEntryAntennaComponents,FerriteMagnetsforPMDC&BLDCMotors
Alternator&startermotorferritemagnets
COMPOSITES Oilsumps ForgedCrankshaft,NVHCovers
PHASE-1 AND PHASE-2 STRATEGY TARGET IMPLEMENTATIONPhase-1(2014-2017)
• Optimize operations inIndia
• TurnaroundEurope• Control Capex & reduce
debt• Initiate new products
and customers (inprocess)
• Teamworking1weekpermonthinIndiafromSpaintosupportthelocalteamtogivetraining,preparingengineeringtoolstobeused,itwasdoneinpast6-7months.
• AcquisitionofBillForgeOctober’16.
• NewcustomersincludeTBK(India)forgearsandAshokLeylandforstampings
• Ason31stDec’2017CAPEXwasofRs3054Mn
• DebtincreasedfromRs3157.55millionin2014toRs10173million
Phase-2(2017-2020)
• M&A• Capexforexpansion• Expand in India and
southeastAsia• Entry into technologies
where CIE has a globalpresence but MCIE isnotpresent
• Redefine productportfolio at MCIE’sGerman & Italianoperations
• SomeproductsinportfolioarelossmakingsoeitherincreasingpricesorexitingfromproductsduetoinefficiencyinMFEEurope.
• Reduceddebtby10%,attheendofyeartargetistobringdebtto800Crs.
REVENUE CONTRIBUTION
2015 2016 2017GEARS 8.75 9.41 8.65COMPOSITES 1.35 1.76 1.42MAGNETICPRODUCTS 2.17 2.68 2.02CASTINGS 7.38 12.68 6.54STAMPINGS 11.94 12.69 12.55FORGINGS 68.39 66.15 68.81
0%10%20%30%40%50%60%70%80%90%100%
GEARS
COMPOSITES
MAGNETICPRODUCTSCASTINGS
STAMPINGS
FORGINGS
REVENUE CONTRIBUTION FROM INDIA AND OVERSEAS
• In2014,overseasrevenuecontributionwas85.08%whichcamedownto57.073%in2017whereasIndiarevenuecontributionwas14.91%in2014increasedto42.927%in2017,sowecansayOperationsinIndiaareimprovingduetoPhase-1&2strategytoworkonefficiencyandtraining.
• Managementwantstoreversethenumbersitwants60%revenuefromIndiaand40%fromOverseas.
386.54
1769.922090.98
2871.8
2204.24
3799.983433.6
3818.1
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2014 2015 2016 2017
INDIA
OVERSEAS
CUSTOMERS
• M&M,TataMotorsandMaruticonstitutemorethan50%ofMCIEIndiaBusiness.(a) M&MincludesPV+UV+LCV+Tractors(excluding2-3wheelers)(b) TataMotorsPV+UV+LCV(excludesMHCV)(c) MarutiincludesPV+LCV
• M&M,Daimlercontributes12-15%andRenaultcontributes5-6%ofcompany’stotalturnover.
CUSTOMERS IN EACH TECHNOLOGY
TECHNOLOGY KEYCUSTOMERS(IndiaBusiness)FORGINGS RenaultNissan,MarutiSuzuki,Ford,Mahindra,
TATA,nexteer,Hero,Honda,Fiat,KXNSTAMPINGS Mahindra,TATA,AshokLeyland,ScootersIndia
LimitedGEARS Mahindra,Caterpillar,Eaton,CNHIndustrialCASTING Hyundai,DANA,Ford,Mahindra,Honeywell,JCB,
CNHIndustrialMAGNETICPRODUCTS Denso,Mitsuba,Varroc,Comstar,Sumida,In
TicasystemsCOMPOSITES Mahindra,Volvo,Scania,TVS
SUBSIDIARIES
(1) Mahindra Forgings Europe AG
• Productionofdropforgepartsfromallusualsteelgrades,companyisunderforgingtechnology.
• SubsidiariesofMFEAG:(a)GesenkschmiedeSchneider(b)Schoneweiss&co.(c)FalkenrothUmformtechnik(d)JecoJellinghaus(closedinDec’15)
• AlloperationsareinGermany• Focusareaistrucks.• Its2/3revenuescomesfromtop5largestcustomers(commercialvehiclemanufacturers)• Outof3operatingsubsidiariesFalkenrothisgoinginlossrest2isshowingprofit.
2017 2018(upto2quarters)In2016MFEAGwasthemainconcernbecauseJecoplantwasnotproperlyclosed(Dec’15)whichleadto
• Additionaltransportationcost• Unexpecteddeliveryandquality
constraints• AffectedprofitsandefficiencyofMFE
AG• Itsoperationshasbeenshiftedto
othersimilarbusinessOrganicrevenuegrowthinGermanyMFEis8%(eurodenominated)
• TruckbusinessisboominginEuropeCustomersarescania,DAF,MAN,Daimler.
• MFEAGislessprofitablebusiness,belowCIE’sstandard.CompanyisnotplanningtoinvestincompanyonlymaintenanceCAPEX,ideaistofulfillcapacityandmaximizeresource
• LetterofawarenessfromCIEgrouptoMFEAGforfinancialgoingconcernvaliduptoMarch2020
• Factorsaffectingperformance(a)IndustrialVehiclesbusinessisusuallylowvolumebusiness.(b)InGermany,high-costmanpowerthatmeansmarginsinthosecomponentsarelowerthaninpassengermarket(c)Ithasmoremanualprocessthanamortizedduetolowvolumes
(2) CIE GALFOR S.A
• Productionofparts/componentsusingforgingstechnologyforautomotiveindustry.• SubsidiaryofCIEGalfor:CIELegapzi(Spain)
UABCIELTForge(Lithuania)Metalcastello(Italy,Gears)
• FocusareaisCars• 80%salestoWesternEurope• Allsubsidiariesareearningprofits.
Upto2017 2018GrowthinEuropeiscomingfrom
• CaterpillarprojectatMetalcastello(orderof20milleuros)
• CrankshaftprojectinCIE,LithuaniaReverseMergerbetweenMetalcastello(absorbingcompany)andMahindragearsglobalLtd(absorbedcompany)on29thMay’2017InvestedinLithuaniaincoupleofpresses.NewordersinpassengervehiclesdivisiontheforgesinLithuania,thisorderforcustomerinPolandandsomeneworderforgalfor.InvestmentinEurope
• LTForgenewcrankshaftline(Rs460mill)
• MetalcastelloCATproject(Rs380Mill)
GrowthinMetalcastellois35%(excludingexchangerate)Lithuaniawillbeatfullratebymid2019.GrowthinEuropeiscomingfromMetalcastelloandLithuaniafromnewprojects.
(3) BILL FORGE
• Itmanufacturesretainers,steeringraces,hubs,pinions,gearblanks,shaftsfor2-4wheelers.• SubsidiariesofBillForgeare:(a)BFPrecisionPvtLtd(India)
(b)MexicoSdeRLCV(Mexico)• BillForgewasacquiredbyMCIEinOctober’16.
2017 2018InvestmentinBFMexicoofRs330MillBillForgeMexico
• 50%ofproductisgoingtoCanadaandGermanynotjustnorthAmericasonoworryfromtrumpmakingdemandofMexicoproductimpossible
• Peakrevenuewillbe$20MillMarutiisanimportantcustomerofBillForgethroughTier-1.BillForgesuppliestotier-1customer(GKN,Nexteeretc)whichsupplytoMaruti.BenefitstoMCIEfromacquiringBillForge
• BFisaggressiveincommercialterms• Exportingcloseto20%ofitsrevenue
toUSandEurope• BFhashighermarginsthanMCIE
India.
Billforgeisgrowingat25%(excludingMexico)MexicoRamp-up
• Reached50%injourneyoframp-up• Problemsregardingtrainingnew
people,runnewmachineandnewtechnologywhichisgoingtotaketime.
• Produces50%ofexpectedvolumeshaveprojecttoproduce4.5millpartscurrentlysupplying2millforcompleter.
• Lowmarginsduetointernalscrap,lowproductivitycomingfromlearningcurve
• Endof2020theywillbeinpeakoframp-up.
(4) Stokes Group Limited
• ManufacturessteelforgingsonvarietyofforgingspressesattheUKsiteinWestMidlandsandDudley.
• Supplyingqualitypartsintoautomotivesectorwhetherinrawforgedstateorfullymachinedpart.
• SubsidiariesofStokesgroupare:(A)StokesForgingsDudleyLtd(B)StokesForgingsLimited
• 92%saleswithinEU,otherexportstoUSandChina• Boththesubsidiariesaredormantcompanies,nooperations• StokesGroupisgoingintolossduetohighadministrativeexpense.
INDUSTRY INDIAN AUTOMOBILE INDUSTRY
• DomesticAutomobileproductionincreasedat7.08%CAGRbetweenFY13-18with29.07millionvehiclesmanufacturedinthecountryinIndia,yearonyearincreasesof17.95%.
• Indiabecame4thLargestautomarketin2017withsalesincreasing9.5%yearonyearbasisto4.02millionunitsin2017.Overalldomesticautomobilesalesincreasedat7.01%CAGRbetweenFY13-18.
GROWTHDRIVERS
• Turnoverofmanufacturersisincreasingat7.01%CAGRfromFY14-FY17.• Risingincomeandlargeyoungpopulation• Highdemandofcommercialvehicles• Initiativeslikein‘MakeinIndia’,Automobilemissionplan2026andNEMMP2020togive
hugeboosttothesector.(a)NEMMP-NationalElectricMobilityMissionPlanaimstoachievenationalfuelsecuritybypromotinghybridandelectricvehiclesyearonyearfrom2020onwards.
20.65 21.5 23.8 24.02 25.33 29.07
0
10
20
30
40
FY13 FY14 FY15 FY16 FY17 FY18
NUMBEROFAUTOMOBILESPRODUCEDININDIA(inMillions)
17.79 18.42 19.72 20.47 21.8624.97
0
10
20
30
FY13 FY14 FY15 FY16 FY17 FY18
NUMBEROFAUTOMOBILESSOLDININDIA(inMillions)
55 59 64 68
0
20
40
60
80
2013-14 2014-15 2015-16 2016-17
GROSSTURNOVEROFAUTOMOBILEMANUFACTURERSININDIA(in
US$Billion)
INDIAN AUTO-COMPONENTS INDUSTRY
• Productionoftwowheelersis23.25Mill,passengervehiclesare4.01Mill,commercialvehiclesare0.89Milland3-wheelersis1.02Millin2017-18.
• Passengervehicleshashighestshareoftotalauto-componentssuppliestoOEMin2016-17,followedby2wheelersandMHCV.
• RevenuehaverisenfromUS$26.5BillioninFY08toUS$43.5BillioninFY17ataCAGRof5.7%duringFY08-17.
• Marketsizeforauto-componentsectorincreasedby11.5%.• Theindustryisexpectedtoposta13-15%growthrateinFY18,onthebackofrobust
growthindomesticpassengervehicle,tractorand2-wheelersegments.• Auto-componentsproductionin2018-19isexpectedtoincrease12-14%inFY19.
EUROPE AUTOMOTIVE INDUSTRY
• Turnovergeneratedbytheautomotivesectorrepresents6.8%ofEUGDP.• Auto-industryislargestprivateinvestorinR&DinEurope,withalmost54Billioneuros
investedannually.• Marginsformanycompanieshasreducedinlastcoupleofyearsdueto• Increaseinmaterialandlabourcost.• Risingcompetitionhencepressureonsellingprice• Dieselemissionscandalandallegationofcollusionamonglargecarmakershaveincreased
insecurityinindustry.
79.61%
13.79%
3.08% 3.51%
DOMESTICMARKETSHAREBYSEGMENT(FY18)(No.ofUnits)
TWO-WHEELERS
PASSENGERVEHICLESCOMMERCIALVEHICLESTHREEWHEELERS
49%
22%
11%
8%6% 2%
AUTOCOMPONENTSSUPPLYTOOEM(FY17)
PASSENGERVEHCILESTWOWHEELERS
MHCV
LIGHTCV
TRACTORS
THREEWHEELERS
26.44 24.0929.23
41.31 42.68 39.6935 38.41 39.05
43.5549
0102030405060
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E
AGGREGATETURNOVER(US$Billion)
PEER COMPARISON FORGINGS
NETSALES PBIDT PAT ROCE ROEBHARATFORGE
5372.95 1655.47 707.3 22.5% 15.99%
RAMKRISHNAFORGINGS
1453.33 288.43 94.66 7.37% 3.96%
MMFORGINGS
620.62 136.56 68.51 14.7% 20.04%
KALYANIFORGE
265.36 28.47 6.56 9.26% 6.29%
MAHINDRACIE
6520 841.4 358.4 11.73% 10.29%
GEARS EPS P/E P/BV EV/EBITDA EV/SALESBHARATGEARS
7.93 13.47 1.77 6.0021 0.52
SHANTIGEARS 3.92 33.79 3.32 20.89 4.8
MAHINDRACIE
9.47 140.74 2.64 12.94 1.67
(inCrs) NETSALES PBIDT PAT ROCE ROEBHARATGEARS
508.96 44.37 6.30 13.37% 8.74%
SHANTIGEARS 214.12 48.73 28.58 10.44% 9.16%MAHINDRACIE
6520 841.4 358.4 11.73% 10.29%
EPS P/E P/BV EV/EBITDA EV/SALESBHARATFORGE 16.38 39.48 6.47 17.72 3.96
RAMKRISHNAFORGINGS
29.13 21.12 4.07 9.85 1.91
MMFORGINGS 25.10 24.46 3.77 11.98 2.67KALYANIFORGE 20.52 16.91 1.17 5.88 0.68
MAHINDRACIE 9.47 140.74 2.64 12.94 1.67
FINANCIALS (inCrs)
2590.77
5569.9 5319.96520
0
2000
4000
6000
8000
2014 2015 2016 2017
NETSALES
2014 2015 2016 2017EBIT -6.79 21.03 321 561.2
-200
0
200
400
600
EBIT
108.75
441.71531.1
814.5
0
200
400
600
800
1000
2014 2015 2016 2017
OPERATINGPROFIT
121.52
484.63 562.5
841.4
02004006008001000
2014 2015 2016 2017
EBITDA
2014 2015 2016 2017PAT -81.49 -78.16 169 358.4
-200-100
0100200300400
PAT
315.76
1422.92
934.1 1018.2
0
500
1000
1500
2014 2015 2016 2017
DEBT
QUARTERLY UPDATE QUARTER-1JAN-MAR2018(inMillion)
• DeclineinEBITDA%(13.8%ascomparetopreviousquarter14.3%)duetoonetime
VRS.• Improvementinmargindueto
VolumeincreasesinalldivisionsMostperformingtechnology(castings,gearsandforgings)Castingsandforgingsproductionusetobe3000tonnesnowits4000pm.
• CAPEXtobe5-6%ofsales(maintenance+growth)
INDIABUSINESS EUROPEBUSINESS
• Significantsalesgrowthinalldivisions• ExcellenttrendinoperativeEBITDA• 24%growthinIndia(3-4%riseinsteel
prices,expectedtoriseinfuture)• Expectedtoinvestin400Crs(PY300Crs)
inIndia• Indiaexports15%(alldivisionand
segments)• M&M,MarutiandTataMotorscombined
constitutemorethan50%ofMCIEIndiaBusiness,M&MincludesPV+UV+LCV+Tractors(excludes2&3-wheelers)TataMotorsincludesPV+UV+LCV(excludesMHCV)MarutiincludesPV+LCV
• GrowthinEuropeHighergrowthfromMetalcastello
NewordercomingfromCaterpillar(20Milleuros)
• TruckbusinessisboominginEurope.
• Salesgrowthis26%Currency-10%Commodity-2%Volumegrowth-14%
• Europeexport2-4%
QUARTER-2APR-JUN2018
INDIABUSINESS EUROPEBUSINESS
• DriversofgrowthinIndia(growthaboveIndianmarketgrowth)MarketevolutioninUV,tractorsand2-wheelersGrowthincustomers
• Salesgrowthis26%Weightedaverageofallsegments-15%Impactofrawmaterials-5-6%Customers-5-6%
• Organic+inorganicgrowth
• GrowthDriversinEuropeRamp-upinLithuania(installednewpresses)Metacastellogrowthis40%MFEGermanyGrowthis5-6%
• InefficienciesinMFELowproductivityinproduction,lossmakingproducts
• OnlyOrganicgrowthinEurope
CONSOLIDATED PROFIT AND LOSS A/C 31/3/14 31/3/15 31/12/2016 31/12/2017REVENUEFROMOPERATIONS
2636.21 5745.59 5524.6 6663
OTHERINCOME 12.77 42.91 31.4 26.9TOTALREVENUE 2648.98 5788.5 5556 6689.9 COSTOFMATERIALSCONSUMED
1080.2 2541.83 2152.7 2933.3
DEPRECIATIONANDAMORTISATIONEXPENSES
119.99 237.5 232.5 273.4
OTHEREXPENSES 1447.35 2763.51 2840.8 2915.2PROFITBEFOREINTERESTANDTAX
1.44 245.67 330 568
FINANCECOST 62.82 119.65 59.4 54.5EXCEPTIONALITEMS
8.32 226.1 9 6.8
TAX 11.79 (21.93) 92.6 148.3 PROFITFORTHEYEAR
81.49 78.15 169 358.4
CONSOLIDATED BALANCE SHEET 31/3/14 31/3/15 31/12/16 31/12/17ASSETS Non-CurrentAssets 1317.496 3603.24 5256.1 5171.8
CurrentAssets 699.12 1380.67 1675.6 2119.7Total 2016.62 4983.91 6931.7 7591.5 LIABILITY Equity 656.04 1902.03 3266.3 3715.6Non-CurrentLiability 510.28 1697.78 1427.4 1527.5
CurrentLiability 850.30 1384.1 2238 2348.4Total 2016.62 4983.91 6931.7 7591.5
CONSOLIDATES CASH FLOW STATEMENT 31/3/14 31/3/15 31/12/16 31/12/17CASHFLOWFROMOPERATINGACTIVITY
211.01 322.26 304 512.2
CASHFLOWFROMINVESTINGACTIVITY
(87.6) (183.99) (830.8) (308.3)
CASHFLOWFROMFINANCINGACTIVITY
(116.36) (293.66) 574.8 (235.6)
FREECASHFLOW 7.05 (155.39) 48 (31.7)
VALUATION A. RELATIVE BASED FORGINGS COMPANY MARKETCAP/SALESBHARATFORGE 3.6RAMKRISHNAFORGINGS 1.33MMFORGINGS 2.32KALYANI 0.42AVERAGE 1.93MarketCapforForgings=SalesfromforgingsofMCIE*AverageMarketCap/sales=4626Crs*1.93=8928.18Crs___________(A)GEARS MARKETCAP/SALESBHARATGEARS 0.26SHANTHIGEARS 4.81AVERAGE 2.54MarketCapforGears=SalesfromGearsofMCIE*AverageMarketCap/sales=581.5Crs*2.54=1477.01_______________(B)STAMPINGS MARKETCAP/SALESAUTOMOTIVESTAMPING 0.23ALCOACORPORATION 0.63MARTINREASINTERNATIONALLTD
0.31
SHILOHINDUSTRIES 0.2AVERAGE 0.34MarketCapforStampings=SalesfromStampingofMCIE*AverageMarketCap/sales=843.7Crs*0.34=288.86_____________(C)
OTHER TECHNOLOGY(CASTINGS+COMPOSITES+MAGNETICPRODUCTS) SCENARIO-1 SCENARIO-2MARKETCAP/SALES 1 0.5(MARKETCAP/SALES)*SALES 671.2______(D1) 335.6_____(D2) Assumingscenario-1 Assumingscenario-2
TotalMarketCap (A)+(B)+(C)+(D1)
11365.25Crs
(A)+(B)+(C)+(D2)11029.65Crs
NoofEquityshares 37.84Crs 37.84CrsPriceperShare Rs300.35 Rs291.48STEPS FOR VALUATION
• Firstly,weneedsalesfromeachtechnologyormajorcontributorslikeForgings,gears,stampingsandothers.
• WeneedtofindMarketCap/Salesofallpeersineachtechnology. • FindingaverageofMarketCap/SalesineachtechnologyexcludingMCIE. • MultiplyingAverageMarketCap/saleswithSalesofMCIEtechnologyrespectively. • WegetMarketCapofeachtechnology;weaddthemtogettotalMarketCapofMCIE. • DividingMarketCapbyNoofequityshareswegetshareprice.
B. EARNING BASED H1CY18 H2CY17 H2CY18 CY18 CY19GrossSales 3883.7 3617 4159.55 8043.25 9249.74NPMargin 5% 5%NP 402.16 462.49NP*(P/E) 10858.32 12487.23PriceperShare
Rs286.95 Rs330
STEPS FOR VALUATION
• Wealreadyhave6monthssales(H1CY18)soweexpectthatgrosssaleswillgrowby15%in2ndhalfof2018(H2CY18)frompreviousyear(H2CY17).
• So,wegetRs4159.55Crsexpectgrosssalesinsecondhalfof2018,ifweaddfirstandsecondhalfof2018grosssaleswegettotalsalesthatisRs8043.25Crs. WeusegrosssalesofCY18,expect15%growthinCY19andwegetRs9249.74Crs.
•
• NetProfitMarginis5.38%,weexpectittobe5%,soexpectedNetprofitforCY18is
Rs402.16CrsandforCY19isRs462Crs. • MultiplyingNetprofitwithP/E(assumingP/Etobe27)isequaltoMarketCap,hencewe
findPriceofshareasRs286.96for2018andRs329.99in2019. (inRsCrs) VALUEOFSTAKE5%Stake 480100% 9600TotalMarketCap 9600NoofEquityShares 37.84Pricepershare 253.7STEPS OF VALUATION
• CIEAutomotiveacquiredanadditional5%inMahindraCIEAutomotiveLtdfromMahindraandMahindraon29thJune2018foranamountofapproximately60MillionEuros.
• Valueof5%stakeisRs480Crs,sototalvalueofcompanyisRs9600Crs,whichisthetotalMarketCapsowegetpricepershareofRs253.7.(1Euro=Rs80ason29thJune2018)
CONCLUSION Mahindra CIE is growing in last 4 years after its global alliance between Mahindra and CIEAutomotive.MCIEsalesisincreasingatCAGRof36.02%,EBITDAatCAGRof90.06%andoperatingprofit at CAGR of 95.65%. PAT and EBITwere negative in 2014 butwithin 3 years it is able torecoverpositiveprofitnumbers.InspiteMCIEshowingstrongquantitativegrowthstillit’sariskycompanybecauseMFEAG(oneofitssubsidiary)hasbeenissuedLetterofAwarenessvalidtillMarch’2020thatisfinancialsupportfromCIEAutometal S.A. Europe growth is highest dependent onMetalcastello and India growthfromBill forge(acquired in2016).Europe isgrowingmarket forelectricandhybridvehiclesbutMCIE isgoingto taketimetoupgrade its technologysountil then itmight loosemarketshare inEurope. MCIE is not updated with changes in technology happening in industry. Out of 14subsidiary, 2 are dormant companies, majority of them have not achieved standard set by CIEAutometal(Spain),itsgoingtotaketimeforsomesubsidiarywherethereishugepreviousloss.MCIE is planning inorganic growth in India which will make business more into merger andacquisition rather thenworking on efficiency and technology. Firstly,MCIEhas to reach balancelevelofcontinuousefficiencyandgrowth,diversifiesitscustomersandfocusmoreonperformancethenexpansion.
DISCLAIMER I am not a SEBI registered Research Analyst. No recommendations are given for the companydiscussed in the report.Anyvaluationdiscussed in the report is solely for informational reasonsandnot tobetakenasan investmentrecommendation. Idonotholdanysharesof thecompany,neitheramIabeneficiarytoanyofthesharesofthecompany.Authoredby:RIVAPATELResearchHead:TEJASJARIWALASources:AnnualReportsConferenceCallInvestorPresentationAceAnalyserandAceEquityIndiaBrandEquityFoundation(IBEF)
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