Mahindra CIE Automotive- Court approval in place for amalgamation! :: ICICI Securities,

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Court approval in place for amalgamation!
• The Bombay High court has sanctioned the merger scheme of
amalgamation between Mahindra CIE Automotive and Mahindra
Ugine Steel, Mahindra Composites, Mahindra Hinoday Industries Ltd,
Mahindra Gears International Ltd, Mahindra Investments (India) Pvt
Ltd, Participaciones Internacionales Autometal Tres, SL
• The next set of approvals from Sebi, RBI and FIPB are likely to come
in four or five weeks while the entire process is most likely to end by
the middle of December as per the management’s commentary
Past rendered irrelevant as bright future beckons! CIE focus strong…
We feel MCI provides a rare, unique Indian auto component play, which
has a global footprint with global promoters along with massive
turnaround possibilities in the company. Post the consummation of the
deal, CIE would hold 51% in the entity while Mahindra would directly hold
~20%. MCI has a presence across both commercial as well as passenger
vehicles with complementary strengths of dual parents. With cost
controls and economic recovery playing out, we expect utilisation levels
to improve leading EBIT margins to rise to ~8% and RoCE expansion to
~14.5% in FY17E. CIE’s track record on turnarounds via cost control and
high focus on financial metrics give us confidence.
Possible multiplier in financials to reflect in price, multiples; reiterate BUY
Mahindra CIE Auto is a unique case of valuation considering the massive
turnaround possibilities. We expect utilisation levels to improve leading to
EBIT margins rising to 9.0% and RoCE expansion to ~15.9% in FY17E.
We expect a significant increase in dividend payouts to ~40% in line with
CIE’s philosophy of high dividend payouts (~40-50%). CFOs are also
likely to balloon to ~| 700-800 crore (FY16E-17E). We value MCI on a
combinational basis of PE and EV/EBITDA, considering it is a turnaround
company and upgrade our multiples in line with multiple expansion for
peers in the forging space. Our target price of | 260 implies an upside of
~20%. We continue to recommend BUY.

LINK
http://content.icicidirect.com/mailimages/IDirect_MahindraCIE_QC_Nov14.pdf