Technical Stock Pick - Automotive Axles :: HDFC Sec

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Hold Automotive Axle; Target : Rs 444 :ICICI Securities,

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E x p e c t a t i o n s   s u r p a s s e d ;  o u t l o o k   c a u t i o u s ! ! !
Automotive Axle (AAL) announced its Q1SY12 results, which were
above our estimates. The topline surpassed our expectations clocking |
292.6 crore (up 4.1% QoQ) vs. our flat expectations (I-direct estimate: |
267.5 crore). The company witnessed a strong rebound on the EBITDA
margin front with margins shooting up ~372 bps QoQ to 12.7%.
However, we attribute the jump in margins to higher consumption of
finished goods inventory during the quarter, which is reflected in stock
adjustment to the tune  of |  9.8 crore. Adjusting for this, the margins
came in line with our estimates at  9.3%. RM cost as a proportion of
sales dipped ~374 bps sequentially with employee and other expenses
hovering at similar levels. The company reported PAT of  |  19.7 crore
reflecting a 69.3% QoQ and 102.0% YoY leap.
ƒ Key highlights for the quarter
The company reported a commendable sequential rise in topline despite
its key clients like Tata Motors (down 0.6% QoQ) and Ashok Leyland
(down 12.9% QoQ) posting sequential de-growth in the M&HCV category.
The revenue rise can be attributed to a combination of better product mix
coupled with robust sales from the recently purchased brake
manufacturing facilities at Mysore  from Kalyani Global Engineering Pvt
Ltd. AAL currently caters to ~10% (Tata Motors) and ~70% (Ashok
Leyland) requirements in terms of axle housings. The margins surprised
positively. However, our outlook remains cautious and we would wait to
see if margin expansion pans out in the coming few quarters.
V a l u a t i o n
The domestic commercial vehicle segment has shown stiff resistance to
relentless macros and has grown 19.3% YTD. Going ahead, interest rate
cuts by the RBI could be a positive trigger. However, we remain cautious
on the margin expansion front. At the CMP of | 419, the stock is trading at
9.8x SY12E EPS of | 42.7 and 6.6x SY13E EPS of | 63.4. We have valued
the stock at 7x SY13E EPS of | 63.4 to arrive at target price of | 444
implying a 6% potential upside. We have a HOLD rating on the stock.

Automotive Axles: Buy :: Business Line

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Compared with the 28 per cent year-on-year growth witnessed in April-November 2010, auto industry growth has indeed taken a beating this year. But unlike the stagnation of 2008-09, the industry has witnessed only moderation in growth, managing to still grow by 13 per cent in April-November 2011. Rising fuel prices, high interest rates and a slowing economy notwithstanding, commercial vehicles (CVs) sales remain encouraging. This scenario is favourable for Automotive Axles, which manufactures single and tandem drive axles, non-drive axles and axle housings and assemblies for the commercial vehicles industry. Axles are used to transmit the driving torque to the wheel and help maintain the position of the wheels. Axles also bear the weight of the vehicle as well as the cargo.

Automotive Axles is a joint venture between Arvin Meritor, US, and the Kalyani Group. Other notable Kalyani group companies include Bharat Forge and Kalyani Steels. With CV sales holding up, a strong pedigree, a diversified clientele, including Ashok Leyland, Tata Motors, AMW, Mahindra-Navistar and Volvo, and attractive valuations make the case for an investment in this stock. At the current market price of Rs 351, it trades at a PE of just 9.4 times its trailing twelve-month earnings. Those with a holding period of not less than two years can buy.

DEMAND BOOST

Even as the auto industry growth has moderated, light commercial vehicles, have shown a strong growth of 29 per cent in April-November 2011. Medium and heavy commercial vehicle (MHCV) volumes too have inched up by 9 per cent during this period. Although industrial output remains sluggish, data from the Indian Foundation for Transport Research and Training (IFTRT) shows that truck rentals on trunk routes have remained firm so far. Truck owners have been able to recover increases in diesel and tyre prices and auto financing costs through higher freight rates, thanks to stable cargo availability from small and medium manufacturing enterprises and the demand for movement of food grains/agri commodities. This, along with good agricultural growth, and an expected peaking out of the interest rate cycle (which is expected to trigger industrial activity) indicates that the MHCV volumes will pick up sooner than later. The company will be a beneficiary of these positive trends in the market.

VALUE ADDITIONS

Apart from manufacturing axles, the company is also into the production of axle housings and assemblies, making it a complete solutions provider to the auto industry. It supplies 10 per cent of the axle housing requirements of Tata Motors and over 50 per cent of requirements of Ashok Leyland. Moreover, Axle assemblies, being a second step up the value chain, also help margin expansion. The company is currently the largest maker of rear drive axle assemblies in the country and, in addition, makes front steer axle assemblies for low floor buses.

The company has also diversified into the manufacture of drive gears and components for air actuated S-CAM brakes. In January this year, it acquired the brakes business of Kalyani Brakes. With the auto component industry being highly fragmented, an increase in the number of components supplied to an automaker would help improve a supplier's bargaining power. Besides, to further increase its value proposition, Automotive Axles is expanding its product portfolio over the next one year to include two-speed axles, planetary hub reduction axles, high-end coach axles and off-highway axles.

FINANCIALS

For the year-ended September 2011, net sales grew year-on-year by 51 per cent to Rs 1012.5 crore and net profits, by about 31 per cent to Rs 57.5 crore. Raw material cost pressures pulled down the operating margins from 13.5 per cent last year to 11.5 per cent this time. However, the current year's numbers may benefit from the flattening of commodity prices.

Buy Automotive Axle; Target :Rs 400 ::ICICI Securities

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F r a i l   o p e r a t i n g   p e r f o r m a n c e ! ! !
Automotive Axle (AAL) reported a  disappointing set of numbers for
Q4SY11. The topline came in line with our expectations at | 273.9 crore
(I-direct estimate:  |  267.7 crore) reflecting a 2.6% QoQ growth. The
revenues were driven by robust sales to the tune of | 46.98 crore from
the recently purchased brake manufacturing facilities from Kalyani
Global Engineering Pvt Ltd. However, the company witnessed a
lacklustre performance on the EBITDA margin front with margins sliding
to their lowest levels since Q1SY09. The raw material as a proportion of
sales jumped ~480 bps QoQ to 74.9% as input costs continued to
remain at elevated levels. The company reported a PAT of | 11.7 crore
(I-direct estimate: | 17.4 crore), indicating a fall of 34.3% QoQ.
ƒ Key highlights of the quarter
The domestic M&HCV segment grew by a robust 14.0% in Q4SY11. The
key players in the segment like Tata Motors and Ashok Leyland registered
sequential volume growth in the M&HCV category of 10.6% and 22.3%,
respectively. The company currently  caters to ~10% and ~70% of the
respective requirements in terms of axle housings. AAL’s recently
purchased brake manufacturing facilities at Mysore from Kalyani Global
Engineering  posted steady growth of ~4% QoQ at | 46.98 crore. The
exports business continued its northward trajectory with sales of | 20.38
crore, a jump of 20.61% QoQ. However, margin maintenance remains a
major concern in the near term with commodity prices continuing to
remain an overhang.
V a l u a t i o n
The domestic commercial vehicle space sustained its positive volume
growth in Q4SY11 (up ~15% QoQ). We maintain our optimistic stance on
volume offtake  in H2FY12 as  the  interest  rate cycle peaks out. We  remain
upbeat on AAL’s business though headwinds like high input costs and
interest rates exist in near term. At the CMP of | 354, the stock is trading
at 8.1x SY12E EPS of | 43.5 and 6.2x SY13E EPS of | 57.1. We have
valued the business at 7x SY13E EPS of | 57.1 to arrive at target price of
| 400 implying a 3% upside. We maintain our BUY rating on the stock.

Buy Automotive Axle; Target : RS 487::ICICI Securities

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Automotive Axle


S t e a d y   p e r f o r m e r … b e a t s   e s t i m a t e s …
Automotive Axle’s (AAL) Q3SY11 performance exceeded our estimates
with the topline at | 273.91 crore (I-direct estimate: | 213.1 crore). The
strong performance (up 39.6% YoY) was driven primarily by robust core
business growth and also due to strong sales to the tune of  | 45.19
crore from the recently purchased  brake manufacturing facilities from
Kalyani Global Engineering Pvt Ltd. During the period, the company
managed to maintain its EBITDA  margins at 12.5% even when raw
material costs have been a challenge  for the entire industry. RM costs,
as a portion of net sales, declined 190 bps QoQ. The company reported
a bottomline of  | 17.8 crore (I-direct estimate:  | 14.6 crore), a 19.6%
YoY rise mainly driven through better operational performance.

ƒ Key highlights for the quarter
Q3SY11 saw a robust growth in the domestic commercial vehicle (CV)
segment with 14.1% YoY growth driven by a large 22.1% up-tick in the
LCV space. The likes of Tata Motors and Ashok Leyland continued to be
key players in the CV segment. The company is currently providing ~10%
and ~70% of the respective requirements in terms of axle housings. AAL,
which had purchased brake manufacturing facilities at Mysore from
Kalyani Global for a total consideration of | 14.6 crore, reported sales of |
45.19 in the Q3SY11. The exports business continues to grow
exponentially (up 197% YoY) with sales of | 16.9 crore, a rise of 69%
QoQ. Margin maintenance can be considered the major positive during
the quarter even in the regime of rising commodity prices.
V a l u a t i o n
The CV space maintained its positive volume growth. We believe
domestic volume growth would remain positive with the investment cycle
pick-up in H2FY12. This affirms our optimistic outlook on AAL’s business
though headwinds like rising input costs and high interest rates exist in
the near term. The stock is currently trading at | 428, 10.1x SY11E EPS of
| 41.7 and 8.4x SY12E EPS of | 50.2. We have valued the business at 8x
SY13E EPS of | 60.9 to arrive at a valuation of | 487. This implies a 14%
upside. Hence, we maintain our BUY rating on the stock.

Result Review Automotive Axles – 2QSY2011 -Angel Broking

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Result Review
Automotive Axles – 2QSY2011
Automotive Axles (AAL) reported robust 63.3% yoy and 55% qoq growth in net sales to
`278.1cr, largely driven by 64% and 47.4% yoy growth in domestic and export sales,
respectively. The top line continued to show strong growth, following healthy CV volumes,
which grew by 15.9% yoy and 22.3% qoq over January–March 2011. On the operating
front, rising input costs continued to hurt EBITDA margins, which fell by 209bp yoy to
12.5%. Noticeably, the 69bp decline in staff cost arrested further margin contraction. As a
result, net profit increased substantially by 46.3% yoy and 88.4% qoq to `18.4cr.
We expect positive traction in the CV segment to help the company sustain its performance
going ahead. We have revised our revenue estimates upwards, following strong
2QSY2011 numbers; however, we expect margins to remain under pressure due to the
constant increase in input costs. At `457, AAL is trading at 14.3x SY2011E and 13.1x
SY2012E earnings of `32 and `34.8, respectively, lower than its historical average of 14x.
Owing to the run-up in the stock price post 2QSY2011 results, we recommend Accumulate
on AAL with a target price of `488, at which level the stock would trade at 14x SY2012E
earnings (in line with its historical valuation).

Buy Automotive Axle; Target : Rs 477 : Expectations surpassed… ICICI Securities,

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Expectations surpassed…
Automotive Axle (AAL) reported its Q2SY11 numbers that were above
our estimates. The topline for Q2FY11 was reported at | 278.1 crore (Idirect
estimate: | 198.9 crore), a huge 55% QoQ jump driven by strong
core business growth and also due to the consolidation of sales (| 52
crore) from the recently purchased brake manufacturing facilities from
Kalyani Global Engineering Pvt Ltd. EBITDA margins have commendably
been maintained at 12.5% QoQ even as raw material costs have
increased 100 bps QoQ as portion to net sales. On the bottomline front,
the company reported | 18.4 crore (I-direct estimate: | 11.6 crore). This
was ~84.2% QoQ jump mainly due to a strong operating performance
and higher topline growth.

Buy Automotive Axle: Results in line, rising input costs a worry: ICICI Sec

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Automotive Axle: Results in line, rising input costs a worry… 
Automotive Axles (AAL) reported its Q1SY11 numbers that were in line
with our estimates. Topline for Q1FY11 was reported at | 179.5 crore (Idirect estimate: | 180 crore), a  sedate 7.5% QoQ jump due to  slower
traction of CV sales post BS-III implementation. EBITDA margins have
seen an increase of 50 bps QoQ and 260 bps YoY to touch 12.4% mainly
due to efficient raw material costs and other expenses management. On
the bottomline front, the company reported  | 9.8 crore (I-direct
estimate: | 10 crore), which was a ~190% YoY jump and flattish QoQ
mainly due to better operating leverage and lower taxes on a YoY basis.

Buy Automotive Axles – 1QSY2011 Results Update - Angel Broking

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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.

Automotive Axles – 1QSY2011 Result Review: Angel Broking

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Automotive Axles – 1QSY2011
Automotive Axles (AAL) posted a strong set of results for 1QSY2011, with the top line and
bottom line largely in line with our estimates. AAL registered 32% yoy and 7.5% qoq growth
in net sales to `179.5cr (`95cr), against our estimates of `175cr. While domestic sales grew
by 29.9% yoy, export revenue increased by 70.9% yoy during 1QSY2011. On the operating
front, AAL registered a 50bp yoy and 67bp qoq expansion in EBITDA margins 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 increase in other
expenditure by 130bp, however, arrested the further expansion in margins. Net profit during
the quarter stood at `9.8cr (`6.4cr), against our estimates of `9.9cr, posting 51.6% yoy
growth. We expect recovery in the commercial vehicle segment to help the company report
better performance going ahead. We maintain our Buy rating 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).

Automotive Axles – 4QSY2010 Results Update-Angel Broking

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Automotive Axles – 4QSY2010 Results Update

Angel Broking recommends a Buy on Automotive Axles with a Target Price of Rs547.

Automotive Axles (AAL) posted good yoy growth in 4QSY2010, though on a qoq

basis the company exhibited subdued performance with top-line and bottom-line

growth lower than expected. Nonetheless, we expect the positive growth in the

commercial vehicle (CV) segment to help the company report better performance

going ahead. We rollover to SY2012E and recommend Buy on the stock.

Outlook remains positive… Automotive Axles :: ICICI Sec

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Outlook remains positive…
Automotive Axles (AAL) reported its Q4SY10 numbers and audited
September year end results, which were below our estimates. The
topline for Q4FY10 was at | 167.0 crore (I-direct estimate: | 228 crore), a
14.9% QoQ decline on the back clearance of earlier inventory build-up
at the OEM’s side prior to emission norms. The SY10 topline stood at |
669.73 crore, a 150.6% YoY jump mainly due to lower base in a
recession challenged SY09. EBITDA margins shrunk from 14% in
Q3SY10 to 11.7% in Q4SY10 mainly due to a rise in input costs (up 160
bps QoQ) primarily driven by a steel price increase. EBITDA grew 36.3%
YoY and declined 28.9% QoQ to touch | 19.6 crore. On the bottomline
front, AAL reported | 9.5 crore, which was a 31.7% YoY jump and 34.8%
QoQ decline mainly due to the slower operating performance
sequentially. The board also recommended a final dividend of | 8.5 per
share of | 10 each subject to approval.

Review :Automotive Axles – 4QSY2010 : Angel Broking

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Review
Automotive Axles – 4QSY2010
Automotive Axles (AAL) posted a weak set of results for 4QSY2010, with top-line and
bottom-line growth substantially lower than expected. Net sales grew by 75% yoy to `167cr
(`95cr), which was significantly lower than our estimates of `206cr. The M&HCV segment,
which contributes to ~95% of AAL’s revenue, grew by ~45% yoy during the quarter. Export
revenue increased by 135% during 4QSY2010.