15 June 2015

Wabco India - Sky High Expectations; Visit Note:: Edelweiss

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We recently met Wabco India (WIL) management to gain insights into the company’s business. Management estimates domestic M&HCV demand: (1) to grow 10-12% in FY16 in current scenario (our estimate: 25%); and (2) growth to taper in H2FY16 as current surge is led by discounts, inventory replenishment at OEM end and replacement demand in the system. However, CV population in the system has increased despite no uptick in the economy. According to management, WIL content per vehicle can rise by ~USD120/unit (currently ~USD300/unit) with introduction of Anti-Braking System (ABS), which has been made mandatory in all M&HCVs from October 2015. Content hike beyond that hinges on introduction of new products, which will require regulatory push.
Content per vehicle: What beyond USD500/unit?
Mandatory use of ABS along with a few recently introduced products will spur WIL content to USD500/unit from USD300/unit currently. Beyond this, addition of new products (emergency brake assist with ABS, wheel dispensers etc) will hike content. However, there is no clarity on demand for new products in the medium term.
Exports: A big opportunity, but will be margin dilutive
WIL’s exports jumped 2.8x over FY12-14 (~35% of sales) riding higher sales (compressors) to parent (Wabco Global). Further export surge hinges on the parent’s decision on type of product to be outsourced from India. WIL is eyeing robust exports, but the segment’s profitability is low due to outsourced nature of the business.


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