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CV recovery, exports, content increase drivers intact

About the stock: Wabco India (WIL), now part of the ZF Group, is the market leader in CV braking space and a technology-focused complete solutions provider.

* FY21 channel mix – OEM 41%, aftermarket 16%, exports 43%

* Capital efficient player with debt-free b/s

Q2FY22 Results: The company posted healthy Q2FY22 results.

* Total operating income for the quarter was at | 616.5 crore, up 47.2% YoY

* EBITDA margins came in at 10.2%, higher by ~160 bps sequentially

* Consequent PAT for the period was at | 32.3 crore vs. | 35 crore in Q2FY21

What should investors do? WIL share price has grown at ~6% CAGR from ~| 5,600 in October 2016, thereby outperforming Nifty Auto index in that time.

* We retain BUY; CV recovery play focused on exports, content increase

Target Price and Valuation: We value the company at revised target price of | 8,800 i.e. 50x P/E on FY23E EPS (earlier target price | 8,020)

Key triggers for future price performance:

* Slated to be a key beneficiary of the domestic CV cyclical recovery in the medium term and further increase in sourcing from parent

* We build 33.8% FY21-23E net sales CAGR given demonstrated ability to outperform underlying user industry growth

* New product development including on futuristic technology fronts i.e., connected, autonomous and electric vehicles

* Gains in content per vehicle (~US$600 in India; ~1/3rd of global levels)

* Mix, operating leverage to push margins, RoCE to 15.5%, 18.2% (FY23E)

Alternate Stock Idea: Besides WIL, in our ancillary coverage we like Apollo Tyres.

* India CV revival beneficiary focused on debt reduction, higher return ratios

* BUY with a target price of | 275

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