About the Company
Mahindra CIE Automotive Limited is an auto components supplier with presence in many technologies, which include forgings, castings, stampings, magnetic products and composites. The Company is focused on the automotive market, including cars, utility vehicles, commercial vehicles and tractors.
Q3 2019 Updates
Financial Results & Highlights
Standalone Financials (In Crs)
|Q3FY18||YoY %||Q2FY19||QoQ %||9M FY19||9M FY18||9M% Change|
*Contains an exceptional item record of Rs (128.6) Cr
Consolidated Financials (In Cr)
|9M FY18||9M% Change|
- The company had a modest Q3 with only 11% growth in revenues on a standalone basis.
- The 9M revenues have increased by a substantial 23% YoY in a standalone basis.
- The PBT and PAT were adversely affected by an exceptional item entry of Rs (128.6) Cr.
- This item includes the company’s provision from impairment on additional investment into the Stokes Group subsidiary of the company. The company has recognized full impairment loss of Rs 116 Cr on this investment.
- The exceptional item also includes a loss of Rs 12.5 Cr on the sale of Mahindra Forgings Europe AG.
- Consolidated revenues for the 9M19 showed good growth of 22% YoY.
- The 9M19 PBT and PAT at consolidated levels grew at higher rates of 46% and 49% YoY respectively.
- In terms of geography, Europe revenues accounted for 58% of total consolidated 9M revenues while India revenues accounted for 42% of the total.
- The 9M Europe revenues saw a growth of 26% YoY while 9M India revenues grew at a rate of 17% YoY.
- The standalone EBITDA margin in the current quarter stood at 14.9% which was up 250 bps YoY but it was also down 30 bps QoQ.
- Taking out the exceptional item, earnings before taxes in the current quarter for the Indian unit saw a growth of 82% YoY. In 9M19, PBT and PAT grew 64% and 62% with a corresponding growth of 21% growth in revenues.
- This emphasizes the excellent improvement in operating margins and internal efficiency for MCIE India.
- For MCIE Europe, sales were up 19% YoY for current quarter with growth in EBT of 9% YoY.
- The main cause behind this phenomenon is reported to be the high base value of last year’s EBT brought about by raw material price increase in this year and stock provision reversal last year.
- The company has also reduced net financial debt from Rs 902.9 Cr last year to Rs 725.5 Cr.
Investor Conference Call Highlights
- The company is simplifying its legal structure by reducing the number of direct subsidiaries in Europe. They have also started the process of merging Bill Forge with MCIE which is expected to be completed later this year.
- The company is expecting to gain some business from China and America in the near future. The management says that it is a key focus point of theirs to be looking to increase their export ratios given that domestic market expected to stay flat next quarter.
- The company is looking to reduce dependence on key customers and widen their client reach.
- The company is optimistic about the prospects of their new acquisition Bill Forge. They are also increasing capacity of Bill Forge by 20%. They will be using this entity to mainly target US markets.
- Almost all of their product divisions outperformed the growth of client product markets in India.
- The total revenues for Bill Forge in 9M19 stand at Rs 860 Cr.
- The top 3 clients for MCIE India were M&M, Tata and Maruti who contributed a combined 47% of domestic revenues for the company.
- The company is looking forward to producing 5% increase in margins from the Stamping division after full automation of the Stamping plant is complete.
- The cash generated from sales of MSC to Galfor have been parked in outside investments.
- The company has around 20%-25% free capacity in the Forgings facilities. Their German plant is operating at 90%-95% utilization and the Lithuanian plant is operating at full capacity. Thus the company is looking to add capacity into the Lithuanian plant to address additional demand in the near future.
- The company believes that European margins are below expectation mainly because low margins from German sales. Thus the company is not keen to add capacity in Germany.
- For FY ’19 the company are investing around 5% of sales as capex.
- The company expects the auto market to grow by 7%-8% next year. This was revised down from 10%-12% earlier as the company anticipates that prices of vehicles are going to go up as they adapt to newer emission norms and the pre-buying of long term vehicle insurance especially for two wheelers.
- The company is looking to book sales of 67 million euros from the Lithuanian plant this financial year.
- 20%-22% of Indian revenues and 26%-28% of European revenues comes from engine related parts manufacturing. This is expected to be affected in the long run with the advent of electric vehicles. But the company is also making separate parts for electric vehicles and plans to expand on this area as electric vehicles rise and take over from internal combustion vehicles. But this effort may not be reflected significantly for the next 2-3 years.
Mahindra CIE is one of the biggest auto parts maker and exporter in India. They recognize the complexity of their operations given their huge number of subsidiaries and have been moving to simplify their internal legal structures. They have also identified key areas for improvement and expansion for the company and have been doing well to stay on track to achieve their targeted growth projections. The company has done well to improve their margins in the Indian business which has led to greater profits. But the auto industry which is the principal market for the company has been flat in the past 2 quarters and is expected to stay the same in the near future. Along with declining margins in their European operations, it remains to be seen how the company deals with the slowdown in auto and auto-component market at home.
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