Wabco India - Strong exports add to growth cushion - ICICI Securities

Wabco India's (WIL) Q3FY21 numbers were a beat driven by resilient performance in exports (up 45% YoY). Topline grew 28% YoY to ~Rs5.7bn as EBITDA margin improved 184bps YoY to 15.5% on the back of better mix and strong fixed-cost reduction. On a cyclical basis, we like WIL's underlying business due to: i) dominant market share structure (>80%), ii) strong volume rebound expectations (35-40% CAGR FY21E-FY23E) in domestic M&HCV industry, and iii) strong technology support (ZF Group) which can lead to new opportunities in both domestic/exports markets. However, RoCEsis likely to remain below the previous cyclical peak (of >20%) even till FY23E (<15%). Though the CV demand revival supports WIL,however, the valuations remain demanding (~37x P/E FY23E) and we would wait for lower stock prices to turn constructive. Upgrade to HOLD.

- Key highlights of the quarter: Net sales grew ~28% YoY to ~Rs5.6bn, up primarily due to ~45% YoY improvement in export revenues to Rs2.66bn (share of revenues increased 306bps to 43.7%). Domestic OEM revenues grew ~40% YoY to Rs2.2bn (share of revenues rose 153bps at 42.2%). The most profitable aftermarket division grew by a marginal ~2% YoY to Rs734mn (share of revenues down 459bps at 14.1%). Export revenues are likely to remain strong as WIL gears up to offer combined end-to-end solutions on the PV and CV segments; EBITDA margin expansion of 184bps YoY to 15.5% was due to lower 'other expenses' (down 206bps) and employee costs (down 306bps). Higher material costs (up 36% YoY) led to gross margin contraction of 328bps to ~39%.

- Key highlights from the earnings call: Management indicated: a) WIL integration with ZF will be completed by FY22; WIL can then offer complementary technologies from the ZF portfolio to service the Indian market (e.g. transmission from ZF + AMT kits from WIL). b) WIL has been emerging as a frugal centre of excellence for exports and the same is likely to continue under ZF. c) Content per vehicle is likely to improve further with ESC/ADAS adoption in FY23. d) Traction in exports is expected to pick pace via products like actuators and compressors, designed and developed in India, are gaining acceptance.

- Upgrade to HOLD: We upgrade FY22E / FY23E earnings by ~12%/14% respectively, as we factor-in continued momentum in exports, strong product synergies with ZF (parent), and increase in content per vehicle in domestic M&HCVs. We roll over our estimates to FY23E and maintain our target multiple at 35x FY23E EPS of Rs170. Upgrade to HOLD from Reduce with a revised target price of Rs5,955 (earlier: Rs4,842).

Shares of WABCO INDIA LTD. was last trading in BSE at Rs.6084 as compared to the previous close of Rs. 6224.55. The total number of shares traded during the day was 1236 in over 486 trades.

The stock hit an intraday high of Rs. 6700 and intraday low of 6051. The net turnover during the day was Rs. 7715782.

Source : Equity Bulls

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