Shares of Mahindra CIE Automotive Ltd jumped over 4 percent in early trade on Tuesday after brokerage house Motilal Oswal recommended a ‘buy’ on the stock with a target price of Rs 360.

The price target implies a 15 percent upside for the Mahindra CIE stock from Monday’s closing level of Rs 312.80. Consequently, on Tuesday, the share price rose to hit an intraday high of Rs 325.65.

Explaining the rationale behind the recommendation, Motilal Oswal said that the proposed sale of Mahindra CIE’s German CV (commercial vehicle) forging operations is a positive development for the company as it will result in a better financial performance (profitability improvement and debt reduction) and will also free up management’s bandwidth.

Mahindra CIE’s board had earlier approved to sell its German Forging operation (Mahindra Forgings Europe AG- MFE), which supplies forging parts to the European trucking industry.

Motilal Oswal added that the company’s increasing focus on profitability will also help its financials. Mahindra CIE aims to achieve an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of over 15 percent in the near-term compared with 12 percent in calendar year 2021.

Keeping in view of the above, Mahindra CIE has become selective in terms of order acceptance. The company now considers only those orders which have more than 20 percent return on investment. It is also investing in high value-added products.

The company is also seeing strong traction in its India business. Led by good order book and new order wins, Mahindra CIE is confident to outperform the domestic auto industry by nearly 10 percent, Motilal Oswal said in its research report.

It also highlighted that the new order wins in the domestic EV (electric vehicle) industry would be positive for Mahindra CIE.

“The company has already won new orders in certain EV specific components. It is receiving strong demand for its gear and stamping division. The company expects to gain higher content/vehicle in EVs vs ICE (Internal Combustion Engine) initially due to limited vendor optionality,” said Motilal Oswal.

Shares of Mahindra CIE Automotive were trading at Rs 323.60, up 3.45 percent, on BSE at 10.49am.

(Edited by : CH Unnikrishnan)

First Published:Dec 27, 2022 5:13 PM IST