Wabco India - Washout on all fronts - ICICI Securities

Wabco India's (WIL) Q1FY21 operating numbers missed consensus estimates as topline declined ~74% YoY to Rs1.6bn, operating leverage turned adverse. EBITDA margin contracted 3,088bps YoY to -17.2% as employee costs remained sticky (up 15% QoQ). On a longer-term basis, we like WIL's business characteristics of: a) dominant market share in M&HCV segment, b) strong new product technology from global parent, and c) diversified revenue mix between OEM (27%), exports (26%) and aftermarket (46%). However, due to pending closure of the tendering period of open offer (Aug'20-end) the stock has yet to realign to underlying business fundamentals (which remain weak both in domestic and export segments). Stock remains expensive (47x EV/EBITDA/74x PE on FY22E basis). Maintain SELL.

- Key highlights of the quarter: Net sales declined ~74% YoY to ~Rs1.66bn, down primarily (our estimate) due to ~85-90% YoY decline in domestic revenues to Rs247mn. Export revenues (our estimate) dropped ~80-85% YoY to Rs236mn in tandem with drop in volumes in most of the company's export markets. The most profitable aftermarket division (our estimate) also declined ~40-45% YoY to Rs426mn. Maintenance spending is likely inch up as wear and tear of older vehicles tends to be higher vis-a-vis new vehicles. EBITDA margin contracted 3,088bps YoY to -17.2%, primarily due to high fixed costs (employee costs were up 3,640bps at Rs770mn). WIL however displayed strong reduction in material costs, down 81% YoY, even, leading to gross margin expanding to ~53%.

- Revenues under pressure; costs remain a key lever: WIL expects export revenues to be under pressure in FY21 as its key export markets (North America and Europe) are witnessing demand weakness even as OEMs slowly ramp up production. We expect overall M&HCV production to decline ~40% YoY in FY21E. We expect domestic demand to pick up in back of the year as fleet utilisation is expected to rise with higher economic activity and improving freight conditions across the country.

- Maintain SELL: We cut FY21E/FY22E earnings by ~66%/18% respectively, as we factor-in lower OEM sales and lower exports and weaker margin trajectory. While we like the strong technology and market share moat that WIL enjoys, we remain cautious about the pace of cycle recovery. We raise our target multiple to 35x (earlier: 30x) FY22E EPS due to bottom of the cycle earning and maintain our SELL rating on the stock with a reduced target price of Rs3,308 (earlier: Rs3,456).

Shares of WABCO INDIA LTD. was last trading in BSE at Rs.7005.1 as compared to the previous close of Rs. 7001.5. The total number of shares traded during the day was 115 in over 36 trades.

The stock hit an intraday high of Rs. 7010 and intraday low of 6995.15. The net turnover during the day was Rs. 805368.

Source : Equity Bulls

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