Wabco India Ltd - Opportunity Priced-In; Result Update Q3FY15 :: Edelweiss

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Wabco India Ltd. (WIL) has reported results for Q3FY15, with PAT lower than expected at INR 28 cr Vs our expectation of INR 33 cr. WIL’s OEM segment revenue grew by 87% YoY vs 43% YoY growth MHCV industry, led by greater shift toward higher tonnage (>16 tonne vehicles), rising content and exports. EBITDA margin was lower than expected and stood at 15.0% in Q3FY15 versus 15.7% in Q2FY15, as a result of lower gross margins attributed to increase in export sales mix. The management has guided for export sales could reach INR 750 crore at optimal capacity utilization. The compulsory mandate by the government for the installation of ABS from the 1st October 2015 in all commercial vehicles (CV) which are above 12 tonne will result in an additional sales opportunity of INR 300 cr for WIL going forward.

Net sales growth at 23% YoY; OEM sales growth at 87% YoY

WIL’s Q3FY15 sales at INR 318 cr grew by 23% YoY. OEM sales stood at INR 138 cr for the quarter, which rose by 87% YoY led by 43% YoY growth in MHCV segment, shift to higher tonnage trucks (> 16 tonne trucks contribution increased to 63% Vs 51% YoY) and higher content per vehicle. With regard to new products, the company is looking at variants of air supply units for export markets, which could be a high volume product as per the management. Domestically, the improvement in penetration of products like Slack Adjuster, higher degree compressor and new generation Brake Chambers will result in enhanced opportunities for the company and going forward the management believes these products could contribute about 10%+ to the overall sales. The company will also be benefited by the increasing use of automatic transmission technology (AMT) in buses, which the company currently supplies to Ashok Leyland buses. Tata Buses will start implementing AMT by FY16, as per management. Assuming 50% implementation of AMT in buses, additional INR 90 cr sales can accrue to WIL. Implementation of AMT in trucks will take time as per WIL’s management.

Gross margins lower QoQ on higher export sales mix; Price revision with OEM pending

EBITDA margins for Q3FY15 where lower than expected at 15.0% Vs 15.7% QoQ, as a result of lower gross margins which declined by 60 bps QoQ on account of an increase in export sales mix .Additionally the company has not taken commensurate price hikes to offset the raw material price increments across FY14-15. We expect WIL’s EBITDA margins to reach 17.0%/19.3% in FY16E/FY17E, respectively led by improved OEM mix. Price hikes by OEMs will provide upside to margins.

Mandatory ABS implementation; sales opportunity of INR 300 cr

We expect that the mandatory implementation of ABS (Anti-Lock Braking System) by the Government for all MHCVs above 12 tonne effective from 1st October 2015 will result in an INR 300 cr opportunity for the company. WIL has guided for a capex of INR 80 crore for FY15 and INR 65 crore for FY16 which will include localisation of ABS. Indigenization of ABS will lead to better margins going forward.

LINK
https://www.edelweiss.in/research/Wabco-India-Ltd--Opportunity-Priced-In;-Result-Update-Q3FY15/10005493.html