Delayed Electrification Orders Expected To Positively Impact Future Prospects

Key Takeaways

• Delayed electrification projects affecting sales growth are expected to improve soon, potentially boosting future revenue and earnings.
  
• Cost control measures ensure steady margins, supporting potential growth in future revenues, especially with market recoveries anticipated in Europe and India.
  
• Challenges in European and U.S. markets, order delays, and reliance on select customers in India may constrain revenue growth and profitability.

Catalysts

Produces and sells automotive components to original equipment manufacturers and other customers in India, Europe, and internationally.

• The delay in ramping up of certain export projects, especially those orders related to electrification from global customers like Stellantis, has impacted sales growth. This is expected to improve in the coming quarters, potentially positively impacting future revenue.
  
• The operational improvements and cost control have led to a steady EBITDA margin, close to 18%, despite lower growth. This focus on efficiency is expected to support margin resilience and net margin growth as revenues increase.
  
• The market expectation that the downturn in the European light vehicle market and U.S. off-highway market is temporary suggests potential for a rebound in these markets, which could result in increased sales and earnings for CIE Automotive India.
  
• There is optimism about the future sales growth in the Indian market, driven by expected recovery in the 4-wheeler and export markets, especially with the anticipated ramp-up of delayed projects. This could lead to revenue and earnings growth.
  
• The company's strategic focus on cost-cutting in its European operations has helped maintain margins despite declining sales, which could lead to stronger net margins and earnings once the market situation stabilizes and sales begin to recover.

CIE Automotive India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CIE Automotive India's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 11.2% in 3 years time.
• Analysts expect earnings to reach ₹11.9 billion (and earnings per share of ₹30.67) by about February 2028, up from ₹8.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.2x on those 2028 earnings, up from 19.6x today. This future PE is lower than the current PE for the IN Auto Components industry at 26.6x.
• Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.98%, as per the Simply Wall St company report.

CIE Automotive India Future Earnings Per Share Growth

Risks

• The European operations have been hit by a decline in the light vehicle market and a prolonged slowdown in the U.S. off-highway market, affecting sales and potentially impacting revenue and net margins.
  
• The delay in ramp-up of some orders, particularly in the export market, has negatively impacted sales growth, which may continue to affect revenue and earnings until resolved.
  
• The European market faces uncertainty due to factors like slow electrification, impending CO2 penalties, and competition from Chinese vehicles, creating risks for future revenue and margins.
  
• The economic environment in Europe remains challenging with market drop forecasted to continue, pressuring revenue and possibly leading to reduced profitability.
  
• Dependence on a few anchor customers in India, with slower growth in non-anchor and export segments, could limit revenue diversification and impact overall earnings growth.

Valuation

• The analysts have a consensus price target of ₹550.8 for CIE Automotive India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹587.0, and the most bearish reporting a price target of just ₹450.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹105.9 billion, earnings will come to ₹11.9 billion, and it would be trading on a PE ratio of 26.2x, assuming you use a discount rate of 14.0%.
  
• Given the current share price of ₹422.45, the analyst price target of ₹550.8 is 23.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.