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Home >Markets >Mark To Market >Mahindra CIE’s robust June quarter results bring little cheer for investors

Shares of Mahindra CIE Automotive Ltd were trading flattish in early deals on Thursday on the National Stock Exchange. This is despite the fact that the company’s June quarter results were better than expectations. Mahindra CIE follows a January to December financial year, making June quarter the second.

“Mahindra CIE Automotive’s Q2CY21 results were a beat on consensus expectation driven by strong European performance (ten-quarter high margins: 14.1%) even as India business was impacted (revenue down about 17% quarter-on-quarter) due to covid lockdowns," said analysts from ICICI Securities Ltd in a report on 22 July.

Unsurprisingly, the covid-19 lockdown weighed on the company’s India business performance. Commenting on the India business, Mahindra CIE said in its presentation, “Sales drop was concentrated in May (30% sales drop) due to official lockdown, movement restrictions and customer plants closure." Although, sales momentum was better in the month of June reaching 85% of the March quarter level.

As such, better performance from Europe, which saw revenue growth of 3% sequentially, helped in compensating some of the muted sales performance from the India business. As analysts from Motilal Oswal Financial Services Ltd point out, “Strong sales recovery, coupled with restructuring measures undertaken in the past, is driving sustained improvement in profitability."

Overall, Mahindra CIE’s consolidated revenue from operations for the quarter has increased by 6.7% vis-à-vis the March quarter to 2,042 crore. On the margin front, Ebitda margin has contracted sequentially by about basis points to 12.7%. Ebitda is earnings before interest, tax, depreciation and amortization; a key measure of profitability for companies. One basis point is one-hundredth of a percentage point.

The company’s free cash flow (FCF) improvement trajectory is encouraging. FCF for the half-year ending June stood at 173 crore. ICICI Securities expects Mahindra CIE to clock a cumulative FCF of around 1,250 crore over CY21/22E.

To be sure, investors are sitting on handsome gains. After all, the stock has more than doubled in the past one year, meaningfully outperforming the Nifty 500 index. This could well limit meaningful upsides from a near-term perspective. Based on Motilal Oswal’s current estimates, the stock trades at 15.5 times/13.8 times CY21E/CY22E consolidated earnings per share.

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