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Profitability hurt by higher RM, forex MTM; outlook remains strong
* Revenue significantly ahead of estimate: Revenue grew 34% YoY to INR16.8b (our estimate: INR15.1b), led by tonnage growth of 19% YoY to 69.7k (our estimate: 68k) and realization growth of 12.4% YoY (+8.8% QoQ) to INR241k/ton (led by favorable mix and RM pass-through; our estimate: INR222.6k). Domestic/export revenue grew ~32%/~34% YoY. Both Auto and Non-auto segment revenue increased ~30% YoY.
* EBITDA came in line with our estimate at INR4.3b; growth was restricted by higher RM cost (+290bp QoQ due to RM inflation and mix) and forex revaluation (impact of 240bp). EBITDA margin of 25.9%, thus, was below our estimate of 28.8%. PAT of INR2.3b also came in lower than our estimate of INR2.4b due to higher depreciation and tax.
* 1HFY19 S/A revenue/PAT grew by 28%/22% YoY, implying second-half residual growth of ~28%/18%.
* Concall highlights:
(a) Management expects continued broad-based growth in 2HFY19. (b) Expect ~25%/5% growth in US Class 8 truck orders in CY18/19; billing growth expected to be much higher in CY19. (c) Secured new wins in domestic PV business from a global PV OEM. (d) Expects EBITDA margin to remain at 28-30% in 2HFY19. (e) Commenced supplies for defense order in 2Q, which drove ~40% YoY growth in domestic non-auto. (f) Overseas subsidiary performance was impacted by WLTP norms-related transition; situation expected to normalize by Dec-18. (g) USD realization during the quarter was INR71.
* Valuation view: We maintain our estimates for FY19/20. We lower our valuation multiple by 10% to factor in the increase in discounting rate and the risks to growth beyond FY20. Maintain Buy with a target price of INR702 (22.5x Sep’20E consol. EPS).
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