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Automotive Axles (AAL) posted a good set of results for 1QSY2011, with the top
line and bottom line largely in line with our estimates. We expect positive growth
in the commercial vehicle (CV) segment to help the company sustain its
performance going ahead. We maintain Buy on the stock.
Net sales up 31.7%; net profit increases 51.6%: AAL registered 31.7% yoy and
7.5% qoq growth in net sales to `179.5cr (`136.3cr), against our estimates of
`175cr. While domestic sales grew by 29.9% yoy, export revenue increased by
70.9% yoy during 1QSY2011. The company’s top line continues to show healthy
growth, following the revival in CV volumes. The M&HCV segment, which
contributes ~95% to AAL’s revenue, however, posted modest ~19% yoy growth
during the quarter. EBITDA margin came in marginally ahead of our estimates at
12.4%, up 50bp yoy, due to a 144bp yoy and 35bp yoy decrease in raw-material
and staff cost, respectively. The 130bp increase in other expenditure, however,
arrested further margin expansion. As a result, operating profit posted strong
37.2% yoy growth to `22.2cr (`16.2cr). Net profit during the quarter stood at
`9.8cr (`6.4cr), against our estimates of `9.9cr, posting 51.6% yoy growth.
Outlook and valuation: During SY2010–12E, we expect AAL to report a ~10%
CAGR in its top line (largely on volume growth) and bottom line. At `391, AAL is
trading at 12x SY2011E and 11.2x SY2012E earnings of `32.6 and `35,
respectively, lower than its historical average of 14x. We maintain Buy on the
stock with a revised Target Price of `490 (`525), at which level the stock would
trade at 14x SY2012E earnings (in line with its historical valuation).
EBITDA margins at 12.4%, up 50bp yoy: In 1QSY2011, AAL’s performance on the
operating front came in slightly ahead of our expectation. The company reported a
50bp yoy expansion in EBITDA margin to 12.4% (11.9%), against our estimates of
12%. The improvement in margins was on account of a 144bp yoy and 35bp yoy
decrease in raw-material and staff cost, respectively. Raw-material cost accounted
for 71% (72.4%) of sales during the quarter. The 130bp increase in other
expenditure, however, arrested further margin expansion. Overall, AAL’s operating
profit grew by 37.2% yoy to `22.2cr in 1QSY2011.
Net profit at `9.8cr, up 51.6% yoy: Net profit during the quarter stood at `9.8cr
(`6.4cr), which came in line with our estimates of `9.9cr. Lower tax outgo aided
bottom-line growth to a certain extent. However, the increase in interest cost
marginally affected the bottom-line performance.
Investment arguments
M&HCV segment to drive future growth: AAL derives its revenue from the CV
segment. Over the last few quarters, following the recovery in the overall
economic and industrial activity, M&HCV volumes have also been showing
good recovery. Overall, we estimate the domestic heavy M&HCV segment to
witness a ~13% CAGR over SY2010–12E. Thus, AAL is expected to be one of
the beneficiaries on account of the anticipated higher offtake by the M&HCV
segment in the next couple of years.
Increasing utilisation levels support margin expansion: Overall increased
volumes will support higher utilisation levels of the existing under-utilised
installed capacities (capacity levels were down by 25% in SY2009). Improved
utilisation would also support higher operating leverage. Therefore, higher
volume growth and margin expansion pose upside risks to
our earnings estimates.
Outlook and valuation
During SY2010–12E, we expect AAL to report a ~10% CAGR in its top line (largely
on volume growth) and bottom line. At `391, AAL is trading at 12x SY2011E and
11.2x SY2012E earnings of `32.6 and `35, respectively, lower than its historical
average of 14x. We maintain Buy on the stock with a revised Target Price of `490
(`525), at which level the stock would trade at 14x SY2012E earnings (in line with
its historical valuation).
Key risk: Lower-than-expected growth in the CV segment (specifically the M&HCV
segment) due to lower IIP poses a downside risk to our growth estimates for AAL.
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Automotive Axles – 1QSY2011 Results Update
Angel Broking maintains a Buy on Automotive Axles with a Target Price of Rs. 490.
Automotive Axles (AAL) posted a good set of results for 1QSY2011, with the top
line and bottom line largely in line with our estimates. We expect positive growth
in the commercial vehicle (CV) segment to help the company sustain its
performance going ahead. We maintain Buy on the stock.
Net sales up 31.7%; net profit increases 51.6%: AAL registered 31.7% yoy and
7.5% qoq growth in net sales to `179.5cr (`136.3cr), against our estimates of
`175cr. While domestic sales grew by 29.9% yoy, export revenue increased by
70.9% yoy during 1QSY2011. The company’s top line continues to show healthy
growth, following the revival in CV volumes. The M&HCV segment, which
contributes ~95% to AAL’s revenue, however, posted modest ~19% yoy growth
during the quarter. EBITDA margin came in marginally ahead of our estimates at
12.4%, up 50bp yoy, due to a 144bp yoy and 35bp yoy decrease in raw-material
and staff cost, respectively. The 130bp increase in other expenditure, however,
arrested further margin expansion. As a result, operating profit posted strong
37.2% yoy growth to `22.2cr (`16.2cr). Net profit during the quarter stood at
`9.8cr (`6.4cr), against our estimates of `9.9cr, posting 51.6% yoy growth.
Outlook and valuation: During SY2010–12E, we expect AAL to report a ~10%
CAGR in its top line (largely on volume growth) and bottom line. At `391, AAL is
trading at 12x SY2011E and 11.2x SY2012E earnings of `32.6 and `35,
respectively, lower than its historical average of 14x. We maintain Buy on the
stock with a revised Target Price of `490 (`525), at which level the stock would
trade at 14x SY2012E earnings (in line with its historical valuation).
Net sales up 31.7% yoy, in line with estimates: AAL registered 31.7% yoy growth in
net sales to `179.5cr (`136.3cr), which was largely in line with our estimates of
`175cr. On a sequential basis, the top line grew by 7.5%. Domestic sales grew by
29.9% yoy, while export revenue increased by 70.9% yoy during 1QSY2011. The
M&HCV segment, which contributes ~95% to AAL’s revenue, however, posted
modest ~19% yoy growth during the quarter.
EBITDA margins at 12.4%, up 50bp yoy: In 1QSY2011, AAL’s performance on the
operating front came in slightly ahead of our expectation. The company reported a
50bp yoy expansion in EBITDA margin to 12.4% (11.9%), against our estimates of
12%. The improvement in margins was on account of a 144bp yoy and 35bp yoy
decrease in raw-material and staff cost, respectively. Raw-material cost accounted
for 71% (72.4%) of sales during the quarter. The 130bp increase in other
expenditure, however, arrested further margin expansion. Overall, AAL’s operating
profit grew by 37.2% yoy to `22.2cr in 1QSY2011.
Net profit at `9.8cr, up 51.6% yoy: Net profit during the quarter stood at `9.8cr
(`6.4cr), which came in line with our estimates of `9.9cr. Lower tax outgo aided
bottom-line growth to a certain extent. However, the increase in interest cost
marginally affected the bottom-line performance.
Investment arguments
M&HCV segment to drive future growth: AAL derives its revenue from the CV
segment. Over the last few quarters, following the recovery in the overall
economic and industrial activity, M&HCV volumes have also been showing
good recovery. Overall, we estimate the domestic heavy M&HCV segment to
witness a ~13% CAGR over SY2010–12E. Thus, AAL is expected to be one of
the beneficiaries on account of the anticipated higher offtake by the M&HCV
segment in the next couple of years.
Increasing utilisation levels support margin expansion: Overall increased
volumes will support higher utilisation levels of the existing under-utilised
installed capacities (capacity levels were down by 25% in SY2009). Improved
utilisation would also support higher operating leverage. Therefore, higher
volume growth and margin expansion pose upside risks to
our earnings estimates.
Outlook and valuation
During SY2010–12E, we expect AAL to report a ~10% CAGR in its top line (largely
on volume growth) and bottom line. At `391, AAL is trading at 12x SY2011E and
11.2x SY2012E earnings of `32.6 and `35, respectively, lower than its historical
average of 14x. We maintain Buy on the stock with a revised Target Price of `490
(`525), at which level the stock would trade at 14x SY2012E earnings (in line with
its historical valuation).
Key risk: Lower-than-expected growth in the CV segment (specifically the M&HCV
segment) due to lower IIP poses a downside risk to our growth estimates for AAL.
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