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Automotive Axle: Results in line, rising input costs a worry…
Automotive Axles (AAL) reported its Q1SY11 numbers that were in line
with our estimates. Topline for Q1FY11 was reported at | 179.5 crore (Idirect estimate: | 180 crore), a sedate 7.5% QoQ jump due to slower
traction of CV sales post BS-III implementation. EBITDA margins have
seen an increase of 50 bps QoQ and 260 bps YoY to touch 12.4% mainly
due to efficient raw material costs and other expenses management. On
the bottomline front, the company reported | 9.8 crore (I-direct
estimate: | 10 crore), which was a ~190% YoY jump and flattish QoQ
mainly due to better operating leverage and lower taxes on a YoY basis.
Key highlights for the quarter
The domestic commercial vehicle (CV) segment has witnessed a sedate
Q4CY10 with 0.2% QoQ growth mainly due to the pre-buying in the
MHCV segment owing to the implementation of BS-III norms in October
2010. The main drivers of the segment continue to remain Tata Motors
and Ashok Leyland, prime customers of the company. The company is
providing ~10% and ~70% of the respective requirements in terms of
axle housings. The exports business has maintained the traction gained in
Q4SY10. It has seen a jump of ~70% to | 9.9 crore mainly due to
improving sales in the American and European continent. As the
slowdown in Europe is not as bad as anticipated, we expect the export
momentum to continue in the near term. However, rising steel prices
could be a drag for EBITDA margin expansion.
Valuation
The CV segment had seen a sedate Q4CY10 due to pre-norms related
buying in Q3. However, we expect the investment cycle pick-up in FY11
to improve the CV volume growth. Hence, we maintain our positive
outlook on AAL’s business though input costs headwinds in near term
could dent margins. However, input price rise remains an overhang on
profits and margins, going forward. The stock is trading at | 388, 13.7x
SY11E EPS of | 28.3 and 8.9x SY12E EPS of | 43.7. We have valued the
business at 10x SY12E EPS of | 43.7 to arrive at a valuation of | 437 that
implies a 12% upside. Hence, we maintain our BUY rating on the stock.
Management Outlook
The management expressed their positive outlook for growth, going
forward, as demand continues to be robust in the domestic market with
key clients like Tata Motors and Ashok Leyland looking at stronger sales
targets in FY11. The management expects SY11 to continue on the
volume traction developed in H2SY10 on the back of larger capex cycle
expectations for SY11 from the industrial and infrastructure related
segments. The company has seen the capacity utilisation of ~72% for
Q1SY11 and expects to improve utilisation levels going forward with
increasing volumes in SY11.The company has headroom in capacity
utilisations and is expected to have a normalized tax rate of ~34% in
SY11 post completion of prior-income tax adjustments completion in
CY10. The company uses Meritor as its selling face, hence, Meritor has
pricing control and undertakes the further selling and distribution of the
products.
Outlook
Automotive Axle (a Kalyani Group Company) with its JV partner Arvin
Meritor is in a unique position as a complete solutions supplier in the axle
related business to all major domestic CV makers of India and also to
certain European and American clients. The domestic demand scenario is
expected to gain renewed vigour in FY11 post the strong investment
cycle uptick and the ramp up in infrastructure development and other
industrial activities. We expect the company to continue with its
impressive performance and achieve a CAGR of 19.3%, 22.5% in FY10-
12E on the topline and PAT front. However, the steel price outlook seems
to be on the uptrend with recent untoward natural calamities causing
spikes in prices and increasing uncertainties. This could turn out to be an
overhang for the margins and profitability.
Valuation
The CV segment had seen a sedate Q4CY10 due to pre-norms related
buying in Q3. However, we expect the investment cycle pick-up in FY11
to improve the CV volume growth. Hence, we maintain our positive
outlook on the AAL business though input costs headwinds in the near
term could dent margins. However, input price rise remains an overhang
on profits and margins, going forward. The stock is trading at | 388, 13.7x
SY11E EPS of | 28.3 and 8.9x SY12E EPS of | 43.7. We have valued the
business at 10x SY12E EPS of | 43.7 to arrive at a valuation of | 437. This
implies a 12% upside potential. Hence, we have maintained our BUY
rating on the stock.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Automotive Axle: Results in line, rising input costs a worry…
Automotive Axles (AAL) reported its Q1SY11 numbers that were in line
with our estimates. Topline for Q1FY11 was reported at | 179.5 crore (Idirect estimate: | 180 crore), a sedate 7.5% QoQ jump due to slower
traction of CV sales post BS-III implementation. EBITDA margins have
seen an increase of 50 bps QoQ and 260 bps YoY to touch 12.4% mainly
due to efficient raw material costs and other expenses management. On
the bottomline front, the company reported | 9.8 crore (I-direct
estimate: | 10 crore), which was a ~190% YoY jump and flattish QoQ
mainly due to better operating leverage and lower taxes on a YoY basis.
Key highlights for the quarter
The domestic commercial vehicle (CV) segment has witnessed a sedate
Q4CY10 with 0.2% QoQ growth mainly due to the pre-buying in the
MHCV segment owing to the implementation of BS-III norms in October
2010. The main drivers of the segment continue to remain Tata Motors
and Ashok Leyland, prime customers of the company. The company is
providing ~10% and ~70% of the respective requirements in terms of
axle housings. The exports business has maintained the traction gained in
Q4SY10. It has seen a jump of ~70% to | 9.9 crore mainly due to
improving sales in the American and European continent. As the
slowdown in Europe is not as bad as anticipated, we expect the export
momentum to continue in the near term. However, rising steel prices
could be a drag for EBITDA margin expansion.
Valuation
The CV segment had seen a sedate Q4CY10 due to pre-norms related
buying in Q3. However, we expect the investment cycle pick-up in FY11
to improve the CV volume growth. Hence, we maintain our positive
outlook on AAL’s business though input costs headwinds in near term
could dent margins. However, input price rise remains an overhang on
profits and margins, going forward. The stock is trading at | 388, 13.7x
SY11E EPS of | 28.3 and 8.9x SY12E EPS of | 43.7. We have valued the
business at 10x SY12E EPS of | 43.7 to arrive at a valuation of | 437 that
implies a 12% upside. Hence, we maintain our BUY rating on the stock.
Management Outlook
The management expressed their positive outlook for growth, going
forward, as demand continues to be robust in the domestic market with
key clients like Tata Motors and Ashok Leyland looking at stronger sales
targets in FY11. The management expects SY11 to continue on the
volume traction developed in H2SY10 on the back of larger capex cycle
expectations for SY11 from the industrial and infrastructure related
segments. The company has seen the capacity utilisation of ~72% for
Q1SY11 and expects to improve utilisation levels going forward with
increasing volumes in SY11.The company has headroom in capacity
utilisations and is expected to have a normalized tax rate of ~34% in
SY11 post completion of prior-income tax adjustments completion in
CY10. The company uses Meritor as its selling face, hence, Meritor has
pricing control and undertakes the further selling and distribution of the
products.
Outlook
Automotive Axle (a Kalyani Group Company) with its JV partner Arvin
Meritor is in a unique position as a complete solutions supplier in the axle
related business to all major domestic CV makers of India and also to
certain European and American clients. The domestic demand scenario is
expected to gain renewed vigour in FY11 post the strong investment
cycle uptick and the ramp up in infrastructure development and other
industrial activities. We expect the company to continue with its
impressive performance and achieve a CAGR of 19.3%, 22.5% in FY10-
12E on the topline and PAT front. However, the steel price outlook seems
to be on the uptrend with recent untoward natural calamities causing
spikes in prices and increasing uncertainties. This could turn out to be an
overhang for the margins and profitability.
Valuation
The CV segment had seen a sedate Q4CY10 due to pre-norms related
buying in Q3. However, we expect the investment cycle pick-up in FY11
to improve the CV volume growth. Hence, we maintain our positive
outlook on the AAL business though input costs headwinds in the near
term could dent margins. However, input price rise remains an overhang
on profits and margins, going forward. The stock is trading at | 388, 13.7x
SY11E EPS of | 28.3 and 8.9x SY12E EPS of | 43.7. We have valued the
business at 10x SY12E EPS of | 43.7 to arrive at a valuation of | 437. This
implies a 12% upside potential. Hence, we have maintained our BUY
rating on the stock.
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