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Domestic capex cycle beneficiary, CV recovery play…

About the stock: Wabco India (WIL), now part of the ZF Group, is the market leader in the 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

Q3FY22 Results: The company reported a steady performance in Q3FY22.

Total operating income for the quarter came in at | 653 crore, up 6%QoQ

EBITDA came in at | 59 crore with margins at 9.0% down 120 bps QoQ

PAT for the quarter ended was at | 32 crore, nearly flat on a QoQ basis

What should investors do? WIL’s share price has grown at ~8% CAGR from ~| 5,550 in February 2017, thereby outperforming Nifty Auto index in that time.

We retain BUY rating as WIL will be a key beneficiary of a CV cyclical recovery along with focus on exports under the ambit of ZF group

Target Price and Valuation: Introducing FY24E numbers, we now value the company at | 9,530 i.e. 50x P/E on FY24E EPS (earlier target price | 8,800)

Key triggers for future price performance:

Recent announcements in Union Budget 2022-23 i.e. robust allocation of | 7.5 lakh crore (up 35% YoY) as capital expenditure for FY23E & extension of commissioning date by a year to avail concessional tax rate (~15%) for new manufacturing set-ups (stimulating private capex) is expected to further spur CV sales, going forward, with WIL a key beneficiary of the same

We build ~20% sales CAGR in FY21-24E amid proven ability to outperform the user industry. Margins, RoCE are seen at ~15-16% by FY24E

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

Gains in content per vehicle (~US$600 in India; one-third of global levels)

WIL is also likely to witness increase in sourcing from parent

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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