Steering ahead: MCIE forges a new frontier

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Updated: August 11, 2015 10:35:02 AM

It’s a win-win with India set to become CIE Automotive’s APAC hub while M&M gets access to new technology

As VS Parthasathy, group CFO, Mahindra and Mahindra (M&M) puts it, an $800-million auto components business has become a $3-billion entity. That’s what the merger of the Spanish CIE Automotive’s 100% European arm—Autometal—with Mahindra Systech and Mahindra Forgings Europe (MFE) has accomplished.

Experts say it’s a win-win: a symbiotic relationship in which the Spanish major looks to make inroads into the fast growing Asia Pacific (APAC) market using India as a base and Mahindra absorbs some much-needed technological prowess to revive its sagging forgings business in Europe. “CIE is looking at India as a hub for the Asia Pacific zone,” explains Parthasarathy.

As the new entity scales up, thanks to the enhanced global presence, CIE’s reputed turnaround capabilities should help it become more profitable. As Credit Suisse wrote recently, CIE has a solid track record of value creation through consolidation. Its Brazilian subsidiary, Autometal—the arm for expansion outside Europe—, has witnessed a ~30% revenue CAGR since 2001, while maintaining healthy 15%-plus EBITDA margins. “Not only are Autometal’s margins higher than its Latin American peers, they were much more resilient in the downturn,” the report noted.


Hemant Luthra, chairman, Mahindra CIE believes revenues across India and Europe could increase by 20-25% without any additional capex provided there is sufficient demand. “MCIE will focus on growth via acquisitions both in India & ASEAN.” In India, Mahindra CIE is looking to expand its customer base beyond Tata Motors and M&M both of whom have had a rough time off late—a slump in the sales of tractors, utility vehicles and LCVs—following poor demand in rural markets. Capacity utilisation had dropped to just 70%. “The growth strategy to cater to the ASEAN and East Asian markets will be executed in one to two years from now,” Luthra observes.

MCIE plans a two phase turnaround strategy: a short term focus on cost reduction—headcount, downtime, power subsidy, procurement and sales price and productivity improvements. And a longer term focus on exploring synergies with CIE Forgings—a CIE subsidiary—by optimising the combination of product-process-location.

As analysts point out, M&M’s forgings business in Europe struggled with profitability and has been a challenge since the financial crisis. Turning this around with CIE’s experts from its top team will be one of the first goals. Margins have already improved from low single digits to around 9% through headcount reduction, higher productivity and select price renegotiation.


As Credit Suisse says, going forward, the key margin driver would be the production optimisation—CIE has a strict benchmarking of which product is optimal and where to manufacture it. “The first step is the closure of the Jeco plant, which itself can add around 200 bp to margins. We expect margins to improve 550 bp over FY15-18E. Margins in India could improve by 400 bp and will largely be a function of higher utilisations along with productivity gains.”


MCIE has supplied most of the stampings and gear parts of Mahindra Jito—new small commercial vehicle launched by M&M. The company will also supply components to Tata Motors for their upcoming products. MCIE has also set aside R300 crore over the next three years to meet new client needs. The association with CIE will help Mahindra cater to vehicle manufacturers like Scania, Daimler and other global automobile manufacturers who manufacture premium trucks and want to source components from local suppliers. Additionally, CIE’s well entrenched relationship with companies like Volkswagen, Chevrolet and Renault in Europe can now be extended in India as well. “Mahindra CIE will look to use India as a low cost manufacturing hub as they can explore India’s supplier base and benefit in terms of cost. The brand value of M&M will help the company in domestic market as well,” said Amit Kaushik, Country Manager, India, Jato Dynamics.

According to industry experts, Mahindra CIE is also said to be trying to manufacture components for Japanese and South Korean auto majors like Toyota, Honda, Hyundai, which have operations in India. For this, the four manufacturing capacities installed by the erstwhile Mahindra Systech in India could come in handy.

Luthra says MCIE is working towards becoming a supplier to ‘Western OEMs’ in India with help from CIE. “CIE has gained entry into Asia—a key automotive market it had limited presence in. CIE has presence in five continents and is constantly increasing its footprint especially in emerging markets. India was the key emerging market missing from its portfolios and Mahindra now has access to a global auto components supplier,” Luthra observed.
CIE will also merge the forgings operations in Mexico, Brazil and China with MCIE, possibly in FY17. Currently, CIE

Automotive holds 53% stake in Mahindra CIE (MCIE), while 20% stake is with Mahindra and Mahindra (M&M). The MCIE stock has returned 68% in last one year, more than ten times that of the benchmark Sensex; the market value is Rs 8,582 crore.

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