Wabco India - Best Play on CV Cycle Recovery; Result Update Q2FY15:: Edelweiss, PDF link

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Wabco India Ltd. (WIL) has reported in-line results for Q2FY15, with PAT of INR 31 cr Vs our expectation of INR 29 cr. WIL’s OEM segment revenue grew by 50% YoY vs 11% YoY growth MHCV industry, buoyed by a favorable product mix. EBITDA margin for the quarter stood at 15.7% versus 15.5% QoQ. The management has guided for export sales of INR 600 cr in FY16E. At optimal capacity utilization, exports could reach INR 750 cr. ABS has been mandated by the Government from 1^st October 2015 in all commercial vehicles (CV) which are above 12 tonne. We believe this Govt move will lead to additional sales opportunity of INR 300 cr for WIL going forward.

Sales grow 18% YoY Vs MHCV industry volume growth of 11%

WIL’s Q2FY15 sales at INR 323 cr grew by 18% YoY, as better MHCV product mix (>16 tonne trucks) and 11% YoY growth in industry volumes led to a 50% jump in OEM segment revenue. At present, export markets are catered to predominantly from WIL’s Mahindra SEZ Phase-I and Phase-II facilities and partly from the Ambattur facility. The management believes that there is additional room for enhancing capacity at the Mahindra SEZ facilities. On domestic side, the improvement in penetration of products like Slack Adjuster and new generation Brake Chambers will result in enhanced opportunities for the company going forward. WIL expects that over a period of time these products can contribute more than 10% to its topline. We have factored in 10%/25% growth in MHCV volumes for FY15E/FY16E, which implies MHCV volumes of ~3 lac vehicles for FY16E (still 19% below FY12 industry volumes).

EBITDA margins rise to 15.7%; Impending price hikes

EBITDA margins for Q2FY15 stood at 15.7% Vs 15.5% QoQ, as operating leverage offset a fall in gross margin by 130 bps QoQ. We believe that the impending improvement in domestic demand for CVs will result in better pricing power (3-5%) with OEMs going forward. We expect WIL’s EBITDA margins to reach 16.8%/18.0% in FY15E/FY16E, respectively led by a combination of improved OEM sales and better pricing power.

ABS mandatory: Sales opportunity of INR 300 cr

ABS (Anti-Lock Braking System) has been made mandatory by the Government for all MHCVs above 12 tonne effective from 1^st October 2015. As per our interaction with the management, the company will be ready with ABS capacity before 1^st Oct 2015 and indigenous sourcing will gradually lead to better margins going forward. WIL has guided for a capex of INR 90 cr and INR 70 cr for FY15E/FY16E, respectively which includes capex for the localization of ABS. With implementation of ABS and 25% YoY MHCV growth in FY17E we arrive at EPS of INR 151.

link

https://www.edelweiss.in/research/Wabco-India--Best-Play-on-CV-Cycle-Recovery;-Result-Update-Q2FY15/10005091.html