Order Book Conversion And Restructuring Will Deliver Future Success

Key Takeaways

• The focus on converting order book to sales and leveraging synergies with customers aims to drive revenue and top-line growth.
  
• Emphasis on operational efficiencies and restructuring in Europe are expected to improve margins and stabilize earnings.
  
• CIE Automotive India faces challenges in translating sales growth into profitability, with operational issues and market slowdowns impacting revenue and earnings potential.

Catalysts

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

• The company is focusing on converting its order book into actual sales, particularly with anchor customers, which could drive revenue growth in the future.
  
• The implementation of a new business development structure and leadership aimed at exploiting synergies with customers is expected to enhance sales conversion and drive top-line growth.
  
• The expected ramp-up of delayed orders, especially from electric vehicle projects and internal combustion engine projects, could positively impact revenue growth as these projects start contributing to sales.
  
• The company's emphasis on operational efficiencies and cost structures is anticipated to gradually improve net margins, particularly in the Indian operations, where there is room for improvement compared to European and Mexican operations.
  
• The ongoing restructuring efforts in the European operations are aimed at maintaining margins despite lower sales volumes, which could stabilize or improve earnings in the medium term.

CIE Automotive India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CIE Automotive India's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.1% today to 10.6% in 3 years time.
• Analysts expect earnings to reach ₹11.5 billion (and earnings per share of ₹28.92) by about May 2028, up from ₹8.0 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 24.1x on those 2028 earnings, up from 19.2x today. This future PE is lower than the current PE for the IN Auto Components industry at 28.3x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.8%, as per the Simply Wall St company report.

CIE Automotive India Future Earnings Per Share Growth

Risks

• Despite growth in the Indian market, CIE India's sales increased by only 3%, indicating that their growth is not outpacing the weighted market average growth. This could potentially impact future revenue growth if not addressed effectively.
  
• The flat EBITDA, EBIT, and EBT in Indian operations despite the increase in sales suggest that CIE Automotive India is struggling to translate revenue growth into increased profitability, which raises concerns about future earnings potential.
  
• The European segment of CIE Automotive reported a 19% sales drop year-on-year, primarily due to a slowdown in light vehicle demand, MHCV, and the U.S. off-highway market, which could continue to depress overall revenue and margins if the situation does not improve.
  
• The reported consolidated sales showed a 6% year-on-year decline, with EBITDA and EBIT also declining, pointing to weak overall financial performance affected by various operational challenges, impacting company earnings negatively.
  
• Delays in order execution, particularly with electric vehicle projects, and a potential longer-than-expected ramp-up period, suggest ongoing challenges that might hinder CIE Automotive India’s ability to capitalize on future growth, impacting revenue and earnings in the short to medium term.

Valuation

• The analysts have a consensus price target of ₹495.0 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 ₹574.0, and the most bearish reporting a price target of just ₹400.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹108.8 billion, earnings will come to ₹11.5 billion, and it would be trading on a PE ratio of 24.1x, assuming you use a discount rate of 13.8%.
  
• Given the current share price of ₹402.45, the analyst price target of ₹495.0 is 18.7% 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.