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Stock to buy: Charts suggest Mahindra CIE Automotive may be gearing for up-move; ICICI Direct sees 14% upside

Mahindra CIE Automotive looks lucrative at the current juncture within the auto ancillary space as it has recently registered a resolute breakout above the falling channel containing entire decline since November 2021, backed by all-time high weekly volume signalling reversal of the corrective trend

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Mahindra CIE Automotive stock to maintain positive bias and head towards Rs 235 levels in the coming months as it is the 50% retracement of the entire decline (Rs 312-164)

Indian equity markets have been consolidating for the past few days amid inflation, rate hikes concerns. While the BSE Sensex has declined 4.4% in the last five sessions, NSE Nifty 50 is down 3.3%. Meanwhile, India VIX, the volatility gauge, has shot up 10%, breaching the 22 levels. Both benchmark indices opened with mild gains on Wednesday. Sensex rose over 150 points, breaching 54,500 levels, and NSE Nifty 50 regained 16,300. Amid high volatility, analysts have been suggesting stock-specific action. In its latest report, ICICI Direct chose Mahindra CIE Automotive as their gladiator picks, predicting as much as a 14% upside within a three-month time frame, given that the auto sector is regaining upward momentum after five months’ breather.

Mahindra CIE Automotive: Buy
Rec. Price: Rs 202-209; Target price: Rs 235; SL: Rs 179; Upside 14%

According to ICICI Direct analysts, Mahindra CIE Automotive looks lucrative at the current juncture within the auto ancillary space as it has recently registered a resolute breakout above the falling channel containing entire decline since November 2021, backed by all-time high weekly volume signalling reversal of the corrective trend. The stock offers a fresh entry opportunity.

The stock, in the process, has closed above the 52 week’s EMA and has witnessed a faster retracement of the last falling segment as 12 week’s decline (Rs 237-164) was almost completely retraced in just five weeks. A faster retracement highlights strength that augurs well for the next leg of the up move. “We expect the stock to maintain positive bias and head towards Rs 235 levels in the coming months as it is the 50% retracement of the entire decline (Rs 312-164),” said ICICI Direct.

Higher utilisation levels, improved efficiency boosting medium term margin uptick

Mahindra CIE has a diversified presence across India and Europe serving PV, 2-W, CV, Off highway, tractor and construction equipment segments among others. “With large part of supply side disruptions behind us, over the medium to longer term we expect the company to continue to outperform base user industries both in India as well as Europe,” said ICICI Direct in its report. Improving order win momentum, thrust on exports and shift in global automotive supply chain away from China are seen as being some of the tailwinds for the company in coming years. At the margin level, the company is poised to benefit from past restructuring actions and reduced breakeven points. Higher utilisation levels and improved efficiency are seen boosting medium term margin uptick.

Healthy performance in Q4FY22; available at inexpensive valuations

The company reported a strong quarter with EBITDA margin coming in at 11.5%, with gross margin largely flat on-year despite input cost adversities. Consolidated revenues were up 18% on-year, driven by 15%/20% on-year growth in India/EU sales. “MCI is expected to move to a higher margin trajectory, going forward, and is available at inexpensive valuations. We build ~8.4% sales CAGR over CY21-23E along with an uptick in margins to 12.4% by CY23E. At the current market price, it trades at ~12x P/E on CY23E EPS of Rs 18.3/share with RoCE inching towards the ~12% mark by CY23E,” said ICICI Direct.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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