MACA’s Q4CY19 operating performance was weak across operating parameters owing to a sharp fall in EU business revenue. While India business should see emergence of stability, the EU business outlook for M&HCV/off-road has weakened. Amidst cyclical pressures, MACA’s efforts to diversify India business are on track. We downgrade our CY20/21 EPS estimate by ~8%/3% to factor in the weakness in the EU business. Maintain Buy with a target price of ~Rs 191 (~12x Dec’21 EPS) due to cheap valuations.

Below-estimate; miss in EU more than offsets beat in India: Consolidated net sales declined ~13% y-o-y to ~Rs 17.2 bn, led by ~27% decline in EU business. India business grew at ~6% driven by consolidation of AEL. Ebitda margin shrank by 60bp y-o-y (+120bp q-o-q) to 12.4% and Ebitda declined 17% y-o-y to ~Rs 2.1 bn (our estimate: ~Rs 2.5 bn). PBT before EO fell 31% y-o-y to ~Rs 1.2 bn (our estimate: ~Rs 1.5 bn). However, substantially higher tax provisioning resulted in ~87% y-o-y decline in adj. PAT to ~Rs 186 mn (our estimate: ~Rs 951 mn). For CY19, revenue/Ebitda/adj. PAT declined 2%/21%/33%. Highlights from commentary: India business has seen highest order wins in CY19, with over 75% of order book from non-M&M customers. In India, it is focusing on optimising manpower, material cost and improving productivity, with benefits to be visible in 2HCY20. With integration of AEL done, it is now open to M&A for filling strategic gaps in areas like Plastic. Bill Forge Mexico is ramping up well.