Wabco India Ltd. - Q4FY12 Result Update - SPA Securities

Wabco India has reported Net Sales of INR 2754 mn, up by 15.3% YoY & 13.3% QoQ. PAT at INR 390 mn, was up by 13.3% YoY & 3.6% QoQ. EBITDA margins at 16.1%, contracted by 382 bps YoY & 183 bps QoQ due to higher than expected COGS & other operating expenses. We introduce FY14 estimates & roll-forward our valuations by 12 months and recommend a "HOLD" on the stock.

Results in-line with estimates

WIL reported net Sales of INR 2754 mn, up by 15.3% YoY & 13.3% QoQ. PAT at INR 390 mn was up by 13.3% YoY & 3.6% QoQ. Although margins was below our expectations, lower than expected tax resulted in in-line profits. WIL derives ~71% of its revenues through OEM segment, 15-16% through replacement markets and 13-14% from exports. WIL posted revenue growth of 16% in FY12 & has been able to outperform M&HCV segment growth of 8% in the same period.

Contraction in EBITDA Margins

EBITDA margins at 16.1%, contracted by 382 bps YoY & 183 bps QoQ. This was largely due to higher than expected cost of goods sold in Q4FY12, which was up by 238 bps YoY & 312 bps QoQ. Other operating expenses were also up by 79 bps YoY & 21 bps QoQ. In FY12, WIL reported EBITDA margins of 17.84%, down by 225 bps YoY. We expect margins to expand by 112 bps to 18.95% in FY14E, on the back of favorable sales mix.

Expansion Plans

WIL is expanding its capacity of its 100% EOU, located at Mahindra World City by incurring a capex of INR 400 mn, which is likely to commence operations in Q1FY13. WIL exclusively uses this unit to cater to the needs of WABCO plants globally. We expect exports to register a CAGR of 35% over FY12-FY14E. WIL is also looking for establishing a new assembly plant in Lucknow to serve customers in North India. It has already purchased land and expects this capacity to come in by FY13.

New products lined up

WIL plans to develop and launch lift-axle control system and foot-brake valve with integrated switches in the Indian market and design and develop hydraulic-brake booster and a series of valve devices for North American OEMs by mid of 2012. We believe with introduction of more technologically advanced products in the Indian market, WIL will continue to expand its content per vehicle.

Outlook & Valuation
We expect M&HCV sector to register a CAGR of 12% over FY12-14E, resulting in sustained growth for WIL. WIL is a globally preferred vendor for Daimler for supply of braking & control systems and will be one of the beneficiaries of Daimler's operations in India starting from FY13. We expect WIL's revenue & profit to register a CAGR of 23% & 26% respectively over the next two years. We recommend a "HOLD" on the stock with a target of INR 1677 in 18 months at 10xFY14E EV/EBITDA.

Source : Equity Bulls

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