Wabco India - Short-term impact from M&H CV slowdown; Buy - Anand Rathi

Industry slowdown to hit growth. We expect subdued, 8.1%, yoy revenue growth for Wabco India (Wabco), to Rs. 2.4bn. Growth would be hit by the ongoing slump in M&H CV sales (down ~25% yoy in 3Qe). Revenue growth ahead would be buoyed into positive territory by more exports (commencement of the plant at Mahindra World City), sales of spares and software. Recovery in the M&H CV cycle is likely only in 2HFY15.

Restrained operating performance. We expect EBITDA margin to grow 15% (down 290bps yoy, up 180bps qoq) and EBITDA to dip 9.8%, yoy. Profit could decline 12.8% yoy, to Rs. 245m, for the sixth successive quarter.

Prospects good. 2HFY14 should see Wabco's performance stabilise, although significant improvement is likely only in FY15. We are positive on the company from a long-term perspective as it would be a key beneficiary of the recovery in the CV cycle. Increased exports, potential regulatory changes and good aftermarket potential add to the positives. Wabco Holdings, the parent, seeks to make Wabco India an R&D hub for its global operations. Our take. 2HFY14 should mark an improvement over the disappointing past-12-month performance. From a long-term perspective, we are positive on the company, as it would be a key beneficiary of the recovery in the CV cycle in FY15, with mounting exports and good aftermarket potential adding to the positives. Wabco Holdings, the parent, seeks to make Wabco an R&D hub for its global operations. The possibility of implementing the mandatory ABS fitment into M&H CVs is an additional positive. In the near term, the ongoing slowdown in commercial vehicles and Wabco's heavy dependence on M&H CVs would weigh on its results. We maintain Buy. Risks. Aboveexpected CV slowdown, higher input costs, royalty increase.

Source : Equity Bulls

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