Motilal Oswal has issued a BUY recommendation for CIE Automotive India, with a revised target price of Rs. 650, indicating a potential upside of 20% from its current levels. CIE Automotive is a diversified automotive ancillary player with unique capabilities across seven different automotive technologies, positioning it well for long-term growth. While the domestic market faces short-term challenges in segments such as tractors and passenger vehicles (PVs), the company’s strong presence in two-wheelers (2Ws) and promising growth in electric vehicles (EVs) provide avenues for future growth. Investors are advised to consider CIE Automotive for its strong fundamentals, efficient operations, and solid long-term growth prospects.

Business Overview and Strategic Positioning

Well-Diversified Automotive Player
CIE Automotive India is notable for being the only company with expertise across seven different automotive technologies. Its key strengths include:

Largest supplier of passenger vehicle crankshafts in India.
Dominant player in forged steering parts.
Strategic supplier of aluminum castings for leading two-wheeler OEMs.
Second-largest supplier of crankshafts in Europe.
Major supplier of gears to global construction and mining equipment manufacturers.
Largest supplier of stampings and gears to key SUV/tractor OEMs in India.
This diversity not only strengthens CIE’s competitive edge but also makes it resilient against downturns in individual market segments.

Domestic Market Performance

Challenges Across Segments, but Two-Wheelers Show Promise
CIE Automotive’s management highlighted weak demand in India across the tractor, PV, and commercial vehicle (CV) segments. However, the two-wheeler market continues to show healthy demand, driven by new model launches from key customers like M&M (Mahindra & Mahindra) and Bajaj Auto (BJAUT). While tractor demand is expected to recover in the second half of FY25, CIE’s two-wheeler business remains a bright spot, supported by robust demand from anchor customers.

Outperforming Core Industry Growth
CIE aims to continue outperforming the domestic auto industry by 5-7% annually in the long term. Its strong relationships with anchor customers such as Mahindra & Mahindra and Bajaj Auto, along with 10-12 other high-growth customers, will drive this outperformance. The company also sees opportunities emerging from the transition to electric vehicles (EVs) and hybrid technologies in India.

European Market Outlook

Uncertainty Amidst the EV Transition
In Europe, the automotive demand outlook remains weak due to uncertainties surrounding the EV transition. Several OEMs are reconsidering their timelines for shifting to EVs, resulting in reduced demand for both internal combustion engine (ICE) and EV vehicles. CIE’s forging business, which contributes a significant portion of its European revenue, is vulnerable to these changes. However, with many OEMs shifting focus towards hybrid vehicles, CIE’s exposure to this segment provides a buffer against the ongoing transition.

Slow EV Penetration Beneficial in the Short-Term
Although EV penetration in Europe has reached 12%, delays in transition plans by several OEMs could help CIE in maintaining its revenue from ICE-related components. Notably, 55% of CIE’s European order book in the first half of CY24 came from the EV segment, showing that the company is well-positioned to benefit from future EV growth, despite the current market uncertainties.

Opportunities in India’s EV Market

Rising EV Penetration and New Order Wins
CIE Automotive India views the EV transition as a growth opportunity rather than a risk. Around 20% of its business in India is tied to engine-related components for four-wheelers and two-wheelers, but the slow pace of EV adoption in India means that demand for these components will not decline sharply in the near future. Meanwhile, CIE is gaining traction in the EV space, securing new orders from major 2W EV OEMs and playing a key role in the production of three-wheeler EVs.

Expanding EV Order Book
As of H1CY24, CIE’s EV order book contributed 30% to its overall order book in India, showcasing strong momentum. The company’s presence in three of India’s four largest PV EV OEMs further solidifies its position in this high-growth segment.

Operational Efficiency and Profitability

Focus on Profitability Amidst Weak Demand
Despite challenges in both the domestic and European markets, CIE Automotive remains focused on maintaining profitability. The company’s margins in Europe are expected to remain stable despite the weak demand, thanks to its emphasis on cost optimization and operational efficiencies. In India, CIE continues to improve its EBITDA margins, leveraging its parent company’s expertise in automation and digitization to drive production efficiency.

Capex and Investment Plans
CIE plans to invest INR 15 billion over the next three years, with a significant portion allocated to India to capitalize on new order wins. In Europe, however, no additional growth capex is required, as utilization levels remain stable at around 80%.

Financial Performance and Outlook

Strong Balance Sheet and Cash Flow
CIE Automotive is a net debt-free company, a key financial strength that provides flexibility for future investments and expansion. The company’s focus on positive free cash flow (FCF) and strict capex discipline ensures that it can weather periods of weak demand without compromising profitability.

Valuation and Recommendation
Motilal Oswal values CIE Automotive at 21x consolidated EPS for September 2026, maintaining a BUY rating with a target price of Rs. 650. At its current price of Rs. 541, the stock trades at 25.0x CY24E EPS and 20.2x CY25E EPS, offering a compelling investment opportunity for long-term investors.

Key Risks

Slow Recovery in Europe
Continued weak demand in Europe, particularly if the EV transition accelerates, could impact CIE’s revenue from ICE-related components. However, the company’s growing presence in hybrid and EV segments should mitigate this risk over time.

Macroeconomic Challenges in India
A prolonged downturn in India’s domestic automotive market, particularly in tractors and PVs, could weigh on CIE’s growth prospects. Nevertheless, the company’s strong two-wheeler business and expanding EV order book provide a buffer against this risk.