Mahindra CIE’s decent India performance makes up for weak Europe show in Q3

The India business benefitted from recovery in passenger vehicle (PV) and two-wheeler production volumes. Also, the quarter saw increase in realisations led by raw-material cost pass through. Ebitda (earnings before interest, tax, depreciation and amortization) margin inched up 10 basis points (bps) sequentially to 15%. One basis point is 0.01%.

On the other hand, the Europe business’ Ebitda margin declined 160bps sequentially to 10% in Q3. The metric was bogged down by elevated energy costs and adverse operating leverage.

Overall, consolidated Ebitda fell 3% sequentially to ₹331 crore and margin declined 50bps to 12.8%. “Given the moderation in commodity costs and partial pass-through of energy cost, we expect margin in both geographies to improve from here on,” said analysts at Motilal Oswal Financial Services in a report on 18 October.

The India business is on a strong footing, driven by robust demand for PV and commercial vehicles (CV). The two-wheeler segment is likely to recover, which bodes well.

However, the outlook for Europe continues to be uncertain amid a potential gas shortage and recession risk. Even so, it helps that Mahindra CIE has a strong order book. The company in the post earnings call said that it has an agreement in place with most customers for pass-through of 60-70% of energy cost inflation. This should aid margins moving ahead.

Separately, Mahindra CIE faces risk from increasing electric vehicle (EV) adoption. “The company derives 25-27% of the Europe business’ revenues and 20% of its India business’ revenues from powertrain products, which will be at risk due to a shift toward EV,” said analysts at Kotak Institutional Equities in a report on 18 October. Although its Metalcastello (off-highway segment) business has bagged an order in the EV segment, the company is yet to win significant orders in the segment for the Europe PV and CV forging businesses, they added.

Positive developments on this front could be a key trigger for the stock. As things stand, shares of Mahindra CIE are down by 5% from their 52-week highs seen this month.