This M&M Unit Is Ready To Shift Gears In 2018, Motilal Oswal Says

Mahindra CIE Automotive Ltd. is all set to shift gears after three years of consolidation. That's according to homegrown brokerage Motilal Oswal, which has initiated coverage on the auto component maker's stock with a ‘Buy' rating.

The target price of Rs 297 implies a potential upside of 19 percent from yesterday's close.

Key Strengths

• India business high dependence on fast growing segments,
• Scope to add customers in Metalcastello and focus on value add at Mahindra Forgings Europe
• Limited growth capex
• Supportive parent
• Focused M&A strategy

The broking firm expects the company's consolidated revenue to grow at a compounded annual growth rate of 8 percent over the calendar years till 2019. It also expects the auto components maker's operating margin to expand by 260 basis points by 2019. Moreover, strong earnings growth and limited capital expenditure will drive improvement in capital efficiencies, Motilal Oswal said.

Shares of the M&M's unit rose as much as 3.6 percent to Rs 259.45 apiece intraday. It has returned 36 percent so far this year, compared to 31 percent gain in the S&P BSE Auto Index.

Mahindra CIE Automotive trades at 48.3 times trailing 12-month earnings per share and 29 times its estimates for the coming year. All 10 analysts tracking the stock have a buy rating, Bloomberg data showed. The analyst consensus price target is Rs 307.38, implying a potential upside of 18.2 percent from the current market price.

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