Competent Auto - 2QFY2016 Result Update - Angel Broking

For 2QFY2016, Competent Auto (Competent) reported a decent set of numbers. The top-line for the quarter grew by 12.2% yoy to Rs. 220cr, which is slightly lower than our estimate of Rs. 226cr. The revenue growth is in-line with growth reported by Maruti Suzuki in 2QFY2016, where its top-line grew by 13.1% yoy largely owing to 10% volume growth. The EBIDTA for the quarter came in at Rs. 6cr as against Rs. 5cr in the corresponding quarter a year ago. The EBIDTA margin for the quarter improved by 9bp yoy to 2.7% as against 2.6% in 2QFY2015. The interest expense for the quarter grew by 40% yoy to Rs. 1.6cr as against Rs. 1.2cr in 2QFY2015. Consequently, the net profit came in at Rs. 2.6cr, growing by 21.6% on a yoy basis.

Proxy play on Maruti's growth: The top-line performance of the company is closely linked to the performance of Maruti Suzuki (MSIL). We expect MSIL to post robust volume growth in the domestic market going ahead on back of new launches which will be replicated by Competent. Also, we expect the market share of the company to remain stable/improve, as entry of a new dealer seems to be commercially unviable with property prices having soared significantly in the Delhi region. Further, higher vehicle sales would likely get converted into greater demand for after sale services, thus bringing in additional revenue for the company.

Scalable business model with healthy balance-sheet: The company has a scalable business model which will enable it to report sustainable revenue growth going ahead. The company has increased its short term debt in 1HFY2016E ahead of the festive season mainly utilizing the funds for inventory. We expect the debt level to return to normal levels by the year end.

Outlook and Valuations: We believe that Competent will continue to benefit from its established position in the automobile dealership market in Delhi, Haryana, and Himachal Pradesh, and from its conducive relationship with its principal, MSIL. During FY2015-17, we expect the company to register a top-line and bottom-line CAGR of 10.9% and 21.7%, to Rs. 1,137cr and Rs. 17cr, respectively. Currently, the stock trades at 5.1x its FY2107E earnings. We have a Neutral rating on the stock.

Shares of COMPETENT AUTOMOBILES CO.LTD. was last trading in BSE at Rs.141.2 as compared to the previous close of Rs. 143.9. The total number of shares traded during the day was 1856 in over 30 trades.

The stock hit an intraday high of Rs. 144.3 and intraday low of 140.1. The net turnover during the day was Rs. 262144.

Source : Equity Bulls

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