Target: ₹475

CMP: ₹371.45

We initiate coverage on Mahindra CIE Automotive (MCIE) with a Buy recommendation and price target of ₹475/share, implying an upside of 27 per cent from the CMP.

Considering the market share gains in India and Europe, management’s focus on improving margin trends and its capability to generate strong operating cash flows, we believe the stock is currently trading at an reasonable 1-year forward consensus PE multiple of 13x against its long-term average of 15x.

We believe MCIE will continue to source capex funding from its robust internal operating cash flows as well as has a further deleveraging potential over FY23-25, which will be value- accretive at the company’s bottom line.

We recommend a BUY rating on the stockand value the company at a 1-year Forward PE multiple of 20x on Indian operations earnings and 9x on European business earnings, thereby arriving at our SOTP-based target price of ₹475/share, implying an upside of 27 per cent from the CMP.

Our recommendation is based on: Improved share of business in India operations; Improving outlook of the PV business in Europe and hiving off of a lower- EBITDA margin trucking segment and Strong FCF generations and negligible debt on the balance sheet.