Wabco India - Exports performance remains resilient - ICICI Securities

Wabco India's (WIL) Q2FY21 result was a beat (albeit on downbeat consensus expectations) driven by resilient sales performance in exports (up 8% YoY) and aftermarket division (up 0.6%). Management indicated exports momentum is likely to sustain in coming periods while domestic OEM business is also witnessing content increase post BS-VI. On a cyclical basis, we like WIL's underlying business due to: i) Dominant market share structure, ii) strong volume rebound expectations (~35-40% CAGR FY21-23) in domestic M&HCV industry, iii) lower cost structure advantage for global customer access and iv) strong technology support (ZF Group). The stock has corrected (~35%) post the closure of open offer; however, valuations remain demanding (~33x PE FY23). We maintain our REDUCE rating on the stock.

Key highlights of the earnings call:

- WIL reported export revenue of Rs1.9bn and aftermarket revenue of Rs607mn in Q2. Exports majorly consist of compressors and actuators in product exports, and global business service centre as part of service exports. In aftermarket, the company has introduced diesel exhaust fluid, connected vehicle programme.

- Company had started supplying air compressor, actuator to one global customer and is now leveraging the access to other global OEMs through Wabco Inc. and ZF, due to better cost structure in India.

- Company will stick to its core competency in CV segment and has introduced reverse parking sensor, reverse lane parking detection as well as electronic braking systems and AMT options on BSVI model launches of OEMs.

- Shift to BSVI has helped increase content per vehicle due to: i) demand for improved braking systems, exhaust brake system, and higher compressor power to handle higher axle load; ii) launch of integrated pedal unit for driver comfort and hill start aid and traction control for better vehicle control; iii) adoption of AMT by OEMs in new models; and iv) introduction of connected vehicles programme (partnering on hardware/software with two major OEMs).

- New product adoption is likely to be better due to offering of safety technologies factory fitted and BSVI platform allows seamless integration of newer technologies even on fleet vehicles. WIL is also working on ABS and electronic part localisation to cater ZF clients.

- Capex for FY21 is expected to be Rs1bn; breakeven for Wabco post integration has reduced due to better cost structure vis-à-vis previous upcycle.

Shares of WABCO INDIA LTD. was last trading in BSE at Rs.4877 as compared to the previous close of Rs. 4958. The total number of shares traded during the day was 226 in over 145 trades.

The stock hit an intraday high of Rs. 4975.95 and intraday low of 4877. The net turnover during the day was Rs. 1110866.

Source : Equity Bulls

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