IGI Logo

Strong play on exports, domestic truck revival

Wabco India’s (WIL) Q4FY21 earnings missed consensus profit expectations even as it surprised positively on growth (topline grew 76% YoY). EBITDA margin contracted 106bps YoY to 11.7% due to commodity price inflation (gross margins down 979bps). We structurally like WIL’s business on: i) dominant market share (>85%) in domestic M&HCV industry, ii) domestic truck industry is likely to remain on growth path well into FY24E with scrappage policy also likely to act as a demand buffer during the same period, and iii) strong technology support (ZF Group) is likely to aid new product/content introductions (e.g. ESC, air disc brakes, services) for both domestic/export markets. The stock remains one of the best proxy plays for M&HCV upcycle. Upgrade to ADD.

* Key highlights of the quarter:

Net sales grew ~76% YoY to ~Rs7.1bn, led by ~114% YoY jump in domestic OEM revenues to Rs3.2bn (share of revenues increased 655bps to 48.7%). Exports also grew ~70% YoY to ~Rs2.5bn (share of revenue declined 323bps at 37.2%) driven by actuators and compressors, designed and developed in India. The most profitable aftermarket division grew by ~50% YoY to Rs938mn (share of revenue down 332bps at 14.1%). Higher material costs (up 106% YoY) led to gross margin contraction of 979bps to ~34%. WIL has announced new capex for an export oriented facility in Chennai.

* Key highlights from the earnings call:

Management indicated: a) Material costs are higher as steel/aluminium/copper were up ~60%/33%/50% QoQ, respectively. The commodity increase pass-through will be visible for domestic OEMs/exports with a quarter lag; aftermarket pricing changes have also become effective Apr’21; b) WIL has started selling air disc brakes (new business opportunity) to Indian OEMs and is also present in Tata Motors electric buses; c) content per vehicle is 3x of India; autonomous content value is significantly higher globally (EU/US/India: $3k/$1.5k/$600 per vehicle respectively); and d) in aftermarket key focus points are: i) product quality improvements, aggressive marketing campaigns; ii) capability building towards remote diagnostics and preventive maintenance; iii) creating connected vehicle eco-system (subscription based); and iv) launching new products (e.g. diesel exhaust fuel systems).

* Upgrade to ADD:

We raise earnings for FY23E by ~8% on the back of potential success in new growth levers (domestic) as robust exports demand. New capex plans indicates confidence of parent (ZF) in capabilities of Wabco India. We raise our target multiple to 40x (earlier: 35x) FY23E EPS of Rs183 on the back of higher visibility of content increase, margin recovery coupled with early recovery cycle in MHCV segment. We upgrade to ADD from Hold with a revised target price of Rs7,350 (earlier: Rs5,955).

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer