Buy ASK Automotive Ltd for Target Rs. 375 - JM Financial Services Ltd
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No Brakes on growth; Play on EV light-weighting Opportunity
Leading supplier in 2W segment with a track record of outperformance: Over the years, ASK has successfully demonstrated its technical, designing, and engineering capabilities to develop new and customised solutions with an astute focus on QCD. This is a testament to the fact that all the leading 2W OEMs in India are its longstanding customers. Despite being a late entrant, ASK has emerged as a sizeable player in ALP components and SCC for the 2W segment, where it is gaining market share. By leveraging these capabilities, leadership position in the braking segment and strong customer relationships, the company has, over the last few years, successfully expanded its offerings and kit value, driving strong growth outperformance (by 10% CAGR) vs. the 2W industry.
Rising electrification / exports to drive growth: ASK’s product portfolio is largely powertrain agnostic. Being a later entrant in the 2W ALP segment, ASK’s market presence was limited so far. However, it has been an early mover in the E2W segment, having successfully developed multiple EV-specific ALP components. ASK’s E2W kit value is 2x that of an ICE 2W and it supplies to all the leading E2W players (incumbents+pure-play EV OEMs) Thus, rising electrification in the domestic 2Ws (25-30% by FY28E) is expected to drive strong growth going ahead. Its expansion into the electric PV segment (won multiple programmes from PV OEMs) by leveraging its capabilities is expected to aid growth and diversification. Additionally, China+1 led exports in the non-auto segment is another area where ASK is witnessing strong growth momentum (~35% revenue CAGR over FY20-24E).
Multiple levers to drive ~20% post-tax RoCE; FCF to remain robust: We expect ASK’s operating profit to grow by 26% CAGR over FY24- 26E led by strong revenue growth momentum (14% CAGR), favourable mix (higher revenue share from EVs and exports) and higher operating leverage. Efficient capital allocation (asset turns at ~2.5x) and lean balance sheet are expected to drive RoCE from 15% in FY24E to 20% in FY26E.
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CIN Number : L67120MH1986PLC038784
