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CEBBCO is the largest organized player in outsourced body building fabrication for CVs in India. It also provides refurbishment of
wagons, and designing and manufacturing of components for wagons and locomotives. It has set up a new wagon manufacturing
factory to capture significant demand in the Indian railway sector. The company has also ventured into the power sector with
manufacturing of structurals for boilers and electrostatic precipitators (ESPs) for clients such as BHEL and L&T.
Investment Rationale
Expected beneficiary of the changing trend
CEBBCO is the largest player in outsourced body building
fabrication for CVs in India with 40% share of Tata Motors' CV
portfolio and also a preferred vendor by all major OEMs viz. Ashok
Leyland, Volvo Eicher, MAN, AMW etc. We expect CEBBCO to be the
major beneficiary of the increasing demand of Fully Built Vehicles
(FBVs) in India with the gradual shift in focus towards building FBV
by CV manufacturers. The share of FBVs has risen to 20% in the
current fiscal vis-à-vis 12% in FY10. We expect the share of FBVs to
rise substantiality over the next decade, as in developed economies
all vehicles are sold in FBVs only.
Foray into higher margin segments
CEBBCO has recently forayed into wagon manufacturing and is
setting up a plant with a capacity to manufacture 1200 wagons &
120 EMU coaches by March 2012. It has recently bagged orders
worth INR 385 mn from Braithwaite for 247 wagons likely to be
executed in FY13E. It has already bid for another 500 wagons, the
outcome of which will be known in the coming months. We expect
railways to contribute c. 23-24% at EBITDA levels in FY13E and
register a CAGR of 196% in revenues over the next 2 years.
Strong presence in the railways refurbishment business
CEBBCO is one of the key vendors for wagon refurbishment
business of Indian Railways (IR). Through refurbishment, IR
attempts to expand the quantity of rolling stock inventory in
circulation. The cost advantages of refurbishment over new
wagons are a key factor in this, as refurbishment costs per wagon
are lower than the costs incurred for a new wagon. We expect
CEBBCO’s refurbishment business to register a CAGR of 37% in
January 17, 2012 INITIATING COVERAGE
revenues over the next 2 years and contribute 7-8% at EBITDA
levels in FY13E.
Strong Order Book
CEBBCO's order book stands at ~INR 7.54 bn, out of which CV business
has contribution of ~INR 6.9 bn. In railways segment it has an order
size of INR 385 mn for manufacturing of wagons and INR 150-200 mn
for refurbishment business of Indian Railways. The current order
book size of the power segment is ~INR 100-150 mn. The average
execution period for the order book is ~1.50-1.75 years.
Expansion plans
CEBBCO is planning to incur a capex of INR 1 bn to enhance its CV
body building capacity by ~50% by FY13E. This capex is expected
to be funded by INR 600 mn of term loan and balance through
internal accruals. The Company is looking to double its fabrication
capacity of power segment to 2000 MT/month by FY14E.
Outlook & Valuation
CEBBCO which derives majority of its revenues from body building
business for CVs segment is expected to gain substantially from
the increasing FBV penetration. We expect share of FBVs to rise to
25% in FY13E & 30% in FY14E vis-à-vis c.20% in FY12E. We expect
domestic volumes of CVs sector to register a CAGR of 16% over
FY11-13E, resulting in sustained growth for CEBBCO. We expect
CEBBCO’s topline & bottomline to register a CAGR of 80% & 231%
respectively over FY11-FY13E on the back of increased focus on
FBVs by OEMs coupled with lack of organized players in this space
and foray into wagons manufacturing & power sector. We expect
EBITDA margins of 16.28% in FY13E vis-à-vis 6.11% in FY11. We
recommend a "BUY" with a target Price of INR 91 in 15 months, at
6x FY13E EV/EBITDA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CEBBCO is the largest organized player in outsourced body building fabrication for CVs in India. It also provides refurbishment of
wagons, and designing and manufacturing of components for wagons and locomotives. It has set up a new wagon manufacturing
factory to capture significant demand in the Indian railway sector. The company has also ventured into the power sector with
manufacturing of structurals for boilers and electrostatic precipitators (ESPs) for clients such as BHEL and L&T.
Investment Rationale
Expected beneficiary of the changing trend
CEBBCO is the largest player in outsourced body building
fabrication for CVs in India with 40% share of Tata Motors' CV
portfolio and also a preferred vendor by all major OEMs viz. Ashok
Leyland, Volvo Eicher, MAN, AMW etc. We expect CEBBCO to be the
major beneficiary of the increasing demand of Fully Built Vehicles
(FBVs) in India with the gradual shift in focus towards building FBV
by CV manufacturers. The share of FBVs has risen to 20% in the
current fiscal vis-à-vis 12% in FY10. We expect the share of FBVs to
rise substantiality over the next decade, as in developed economies
all vehicles are sold in FBVs only.
Foray into higher margin segments
CEBBCO has recently forayed into wagon manufacturing and is
setting up a plant with a capacity to manufacture 1200 wagons &
120 EMU coaches by March 2012. It has recently bagged orders
worth INR 385 mn from Braithwaite for 247 wagons likely to be
executed in FY13E. It has already bid for another 500 wagons, the
outcome of which will be known in the coming months. We expect
railways to contribute c. 23-24% at EBITDA levels in FY13E and
register a CAGR of 196% in revenues over the next 2 years.
Strong presence in the railways refurbishment business
CEBBCO is one of the key vendors for wagon refurbishment
business of Indian Railways (IR). Through refurbishment, IR
attempts to expand the quantity of rolling stock inventory in
circulation. The cost advantages of refurbishment over new
wagons are a key factor in this, as refurbishment costs per wagon
are lower than the costs incurred for a new wagon. We expect
CEBBCO’s refurbishment business to register a CAGR of 37% in
January 17, 2012 INITIATING COVERAGE
revenues over the next 2 years and contribute 7-8% at EBITDA
levels in FY13E.
Strong Order Book
CEBBCO's order book stands at ~INR 7.54 bn, out of which CV business
has contribution of ~INR 6.9 bn. In railways segment it has an order
size of INR 385 mn for manufacturing of wagons and INR 150-200 mn
for refurbishment business of Indian Railways. The current order
book size of the power segment is ~INR 100-150 mn. The average
execution period for the order book is ~1.50-1.75 years.
Expansion plans
CEBBCO is planning to incur a capex of INR 1 bn to enhance its CV
body building capacity by ~50% by FY13E. This capex is expected
to be funded by INR 600 mn of term loan and balance through
internal accruals. The Company is looking to double its fabrication
capacity of power segment to 2000 MT/month by FY14E.
Outlook & Valuation
CEBBCO which derives majority of its revenues from body building
business for CVs segment is expected to gain substantially from
the increasing FBV penetration. We expect share of FBVs to rise to
25% in FY13E & 30% in FY14E vis-à-vis c.20% in FY12E. We expect
domestic volumes of CVs sector to register a CAGR of 16% over
FY11-13E, resulting in sustained growth for CEBBCO. We expect
CEBBCO’s topline & bottomline to register a CAGR of 80% & 231%
respectively over FY11-FY13E on the back of increased focus on
FBVs by OEMs coupled with lack of organized players in this space
and foray into wagons manufacturing & power sector. We expect
EBITDA margins of 16.28% in FY13E vis-à-vis 6.11% in FY11. We
recommend a "BUY" with a target Price of INR 91 in 15 months, at
6x FY13E EV/EBITDA.
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