CIE Automotive India: Brokerage expects margin boost, check best price to buy The shares of CIE Automotive India surged 1.02% intraday on August 18, on the National Stock Exchange. The analysts at Geojit Financial Services have recommended a ‘Buy’ rating for the scrip, stating that the “current growth story in the domestic market and the focus on building the EV product portfolio and operational performance in the European business are likely to push the margin forward.” The brokerage report said, “We expect the company’s overall margin improvement trend to continue for India and European businesses (15-16%), due to cost rationalising and supplier consolidation in the international business. “We expect normal growth in the domestic car segment for the year due to a high base and fading pent-up demand. In addition, there is the possibility of a tightening in International business in the near term. However, the long-term growth prospects are intact, and we expect a re-rating in valuation similar to listed MNCs in the automotive sector. We value CIE at 21x CY24E EPS and recommend a buy rating with a target price of Rs 576,” the report added. CIE Automative’s market capitalization stands at Rs 18.32k crore. The company’s P/E ratio is 31.88, and the ROE stands at 12.15. The shares have shown mixed performance over the last one year. The stock price has fallen 1.4% in the last one week and 8.9% in the last one month, while it surged 23.6% in the last 6 months and a whopping 70.9% in the last one year. The 52-week high for the stock is at Rs 578.10 on July 19, 2023, whereas the stock hit the 52-week low of Rs 252.35 on September 28, 2022.
Services miss estimates; Software better than expected: Services business grew 0.6% q-o-q cc and missed HCLT’s Q3FY23 guidance, mainly due to a 3.8% q-o-q cc decline in the ER&D segment. Growth in the IT&BS segment moderated slightly to 1.6% q-o-qcc but was in line with estimates. BFSI and Life Sciences were the key growth drivers, while communications were the drag among verticals. Growth was led by the Americas region, while Europe and ROW posted declines.
Decline in bookings reflects delays in decision-making: HCLT won 10 large deals in services and three large deals in Software with net-new deal TCV of $2.1bn, down 8% y-o-y. Deal wins were driven by the services portfolio, were centered on cost optimisation and vendor consolidation and came mainly from BFSI, manufacturing and Life Sciences verticals. Management highlighted a ramp-down in discretionary spending in Hitech and communications verticals but pointed to a strong deal pipeline.
FY24 guidance in line with expectations: HCLT has guided for 6-8% y-o-y growth for overall business and 6.5-8.5% y-o-y cc growth in services segment and 18-19% margins in FY24—all in line with our assumptions. We maintain our FY24-25 cc revenue growth and margin estimates and expect HCLT to deliver 6.5% cc revenue growth and 18.4% margins in FY24. However, we lower our earnings forecasts by 2% to factor the higher tax rate indicated by the management.
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Raise PT: HCLT has fared better in Q4, particularly in North America and BFSI, unlike its peers. However, rising demand uncertainty as a US recession nears remains a concern. HCLT’s stock at CMP trades at 17x PE and offers a 5% yield, which in our view should limit downsides and derating. Hence, we raise our target PE to 17x (16x earlier) and raise our PT to Rs 1,125, offering 8% potential upside.