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Robust growth prospects up ahead…

Wabco India (WIL) reported a mixed Q4FY21 performance. Net sales were up 75.9% YoY, 25.7% QoQ to | 712 crore. Performance on a YoY basis was led by OEM channel (up 114%) with exports, aftermarket growth pegged at 70%, 50%, respectively. Margins for the quarter came in at 11.7%, down 377 bps QoQ amid a sharp 492 bps sequential jump in raw material cost as a percentage of sales. Consequent PAT for the period was at | 47.7 crore (up 51.3% YoY). The company declared a dividend of | 11/share for FY21.

Broad-based topline drivers in place

As of FY21, share of OEMs, aftermarket and exports within overall channel mix (sales) were at 41%, 16% and 43%, respectively. Share of OEMs is set to increase further in coming quarters as the domestic industry recovers from a cyclical bottom (hit after ~22 months of decline from April 2019 onwards), with industry tailwinds such as the government’s sustained focus on infra, pickup in mining and construction activity and introduction of the nationwide scrappage policy are seen brightening the medium-term India M&HCV outlook. We believe the CV space will outperform the wider automotive industry over the next few years and WIL, as a market leader in the CV braking space, stands to benefit accordingly. On the exports front, the company is expected to continue to gain from its status as a sourcing hub for its parent due to its cost competitiveness and proven engineering capabilities. WIL announced that it is currently scouting for land for undertaking an expansion near Chennai in line with the increased visibility, although exact details are yet to be provided. WIL continues to innovate offerings and over the longer term has identified connected, autonomous and electric transition as the next drivers of growth in content per vehicle.

Q4FY21 earnings conference call: Highlights & key takeaways

WIL said (1) it aims to outperform market by >10% going forward; (2) global kit value is ~3x that of India but BS-VI is a facilitator for reducing the gap. Kit value per vehicle in India stands at ~US$600 vs. ~US$1,500 in US and ~US$3,000 in Europe; (3) OEMs may voluntarily prepone introduction of electronic stability control (ESC; ASP stands at ~| 10-15,000/unit) before mandated 2023 timeline; (4) exports are done on transfer pricing basis while OEM pricing pass through takes place with a quarter’s lag; (5) compressors for exports, air disc brake levers and reverse parking assist systems (RPAS) are some new product opportunities; and (6) it has tied up with few OEMs for connected offerings such as cloud-based subscription services.

Valuation & Outlook

We build 32.3% sales, 74.7% PAT CAGR (latter aided by low base) over FY21-23E and believe WIL continues to offer a prime play on the impending M&HCV revival domestically. We maintain our BUY rating, valuing WIL at | 8,020, 48x P/E on FY23E EPS (previous target price | 7,350). Strong technology support from MNC parentage & track record of outperformance vs. industry justify relative valuation premium, in our view.

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