Automotive Axles - Result Update 3QSY2013 - Angel Broking

Automotive Axles (ATXL) reported a poor performance for 3QSY2013, which was on expected lines, given that the medium and heavy commercial vehicle (MHCV) industry continues to witness slowdown in demand. We expect the growth outlook for the MHCV industry, which is the key driver of ATXL's revenues, to remain challenging in 4QSY2013 as well given that the outlook for economic growth remains grim. Consequently, we revise our SY2013 revenue and earnings estimates sharply downwards by 16.1% and 35.7%. Our SY2014E revenue and earnings estimates are also revised downwards by 7.8% and 4.9% respectively. We believe that the current valuation, to some extent, factors in the growth revival that is likely to happen in SY2014. We therefore maintain our Neutral rating on the stock.

Slowdown in MHCV sales impacting performance: For 3QSY2013, ATXL's top-line posted a decline of 11.5% yoy (1.3% qoq) to Rs. 161cr tracking the 16.3% yoy (11.5% qoq) decline in MHCV industry volumes. The operating margins contracted 127bp yoy to 8.6% as raw-material expenditure as a percentage of sales grew 250bp yoy during the quarter. Other expenditure, however, declined sharply by 18.7% yoy due to tight control over costs. Led by a weak operating performance, the operating profit and net profit witnessed a significant decline of 22.9% and 38% yoy to Rs. 14cr and Rs. 4cr respectively. On a sequential basis though, the EBITDA margin improved 140bp led by softening of commodity prices, which led to a 17.9% and 46.6% yoy jump in operating profit and net profit respectively.

Outlook and valuation: We believe that the current valuation of 8x SY2014E earnings captures the expected revival in earnings growth in SY2014. Due to limited upside from current levels, we maintain our Neutral rating on the stock.

Source : Equity Bulls

Keywords