Buy ZF Commercial Vehicle Control, Target Price Rs 10,530 - ICICI Direct
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Technological extension amid upswing in CV space
About the stock: ZF Commercial Vehicle Control Systems India (ZFCV) (erstwhile Wabco India), now part of the ZF Group, is the market leader in CV braking space and a technology-focused complete solutions provider.
* FY22 sales channel mix – OEM ~45%, aftermarket ~14%, exports ~41%
* FY22 Product mix: Sale of products ~91%, Services ~9%
Q1FY23 Results: The company reported a healthy performance in Q1FY23.
* Total operating income for the quarter came in at | 798.4 crore, up 2% QoQ
* EBITDA came in at | 98.7 crore with margins at 12.4% up 100 bps QoQ
* PAT for the quarter ended was at | 62.4 crore, up 10% on a QoQ basis
What should investors do: ZFCV share price has grown at ~9% CAGR from ~| 5,500 in August 2017, thereby outperforming Nifty Auto index in that time.
* We retain BUY on ZFCV amid introduction of advanced technologies, solutions for electric buses & well charted path on content/vehicle front
Target Price and Valuation: Upgrading our estimates, we now value the company at | 10,530 i.e. 50x P/E on FY24E EPS (earlier target price | 9,600).
Key triggers for future price performance:
* Cyclical upswing in domestic CV space, with ZFCV being a key beneficiary. We build ~27.6% sales CAGR over FY22-24E amid proven ability to outperform the user industry and advancements on the technology front
* Diversified product portfolio following new launches such as connected tech, ADAS components and E-Components, Hill Assist, ESC among others
* Uptick in content per vehicle amid introduction of advanced products & services, shift to superior offering & premiumisation play (~potential kit value at 3x from current levels of ~| 45,000-48,000/unit)
* With thrust to increase localisation (currently at ~80-85%) and operating leverage at play; margins, RoCE seen at ~15,18%, respectively, by FY24E
Alternate Stock Idea: In the auto coverage, we also like M&M.
* Focused on prudent capital allocation, UV differentiation & EV proactiveness
* BUY with a target price of | 1,500
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