Mahindra CIE is an entity formed by the merger of all automotive component companies of Mahindra Systech and CIEas European forging companies. Post-merger it will be one of the worldas largest forger with presence across North/South America, Europe, India and China.
I couldn’t find a thread on Mahindra CIE, hence opening a new thread asI thought it is a good opportunity that all the fellow members may be able to benefit from after proper due diligence.
I stumbled upon this stock in Jana2014 while discussing long term opportunities with a 5 year perspective and hence the credit goes to my friend KD in introducing this idea to me. As soon as I looked into this opportunity I was convinced about its prospects. I think the market had not identified this opportunity earlier and has only recently started discovering it.
Rather than write a note myself I am reproducing an existing research report by ICICI Direct to initiate the discussion on this stock. The research report is available in the public domain. I am a new member who has joined in the recent past and still a bit hesitant to initiate stock ideas on my own and hence using this report (as I believe I am not at that level right now and still learning). But I have my own convictions in terms of stocks and try to use my basic understanding to invest in the markets.
Opportunistic: This is the short term bet (Arbitrage Opportunity)
Mahindra Ugine (MUgine) and Mahindra Composites (MComposites) will be merged with Mahindra CIE (MCIE).
Share swap ratio:
284 shares of MCIE for every 100 shares held of MUgine a 22% arbitrage opportunity as on todayas closing prices. (Liquidity is good and taking position is easy)
90 shares of MCIE for every 100 shares held of MComposites a 20% arbitrage opportunity as on todayas closing prices. (Liquidity is not good and hence taking position is difficult)
Long Term: This is wherein lies the beauty of this merger (Creation of a Global Auto Ancilliary Behemoth)
Strong Tier-1.5 supplier to global OEMs.
The company will become the third largest forger in the world with a consolidated revenue size of Rs. 5000 Crs. MCIE would have a presence in Asia (India, China) and Europe (Spain, Germany, UK, Italy, Spain, Lithuania) supplying forgings, castings, gears and stampings, thereby making Mahindra CIE Automotive a strong global player.
I believe that the estimates used in this report are conservative FY17 EPS of Rs. 12 (Approx.).
Bharat Forge today trades at 30 times its earnings, therefore one can use this as a base to try and arrive at the valuations of MCIE 3 years down the line. MCIE in my opinion would have significant advantages as compared to Bharat Forge for reasons stated in this report. I wouldnat like to put a target price from a 3 year perspective. But in my opinion I wonat be surprised to see MCIE give returns of CAGR 40%+ (from present levels and including the arbitrage)for next 3 years. (Please Note: The stock has run up significantly in the recent past.)
The Investment Rationale, Positives and Negatives are given in the report.
Discl: I have disclosed my portfolio in this forum and I am invested in MCIE/MUgine since much lower levels since the month of Jana2014 and my current allocation towards MUgine stands at 20% of my portfolio. Hence my views on MCIE may be biased.
I would request other fellow members to look at this opportunity and share their views.