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.


Key highlights for the quarter
The domestic medium and heavy commercial vehicle (MHCV) segment
has seen strong growth of ~54.7% YTD with the segmental share in the
CV increasing by ~4.3% to ~47.4%. The main drivers of the segment are
Tata Motors and Ashok Leyland, prime customers of AAL. AAL is
providing ~10% and 70% contribution to the respective companies. The
exports business has seen an improvement sequentially of ~62% to | 9.2
crore. The business is channelised through its JV partner Arvin Meritor
across the globe. However, an immediate concern is the slowdown in
demand arising in Europe, which has seen a decline in automobile sales
in general.

Valuation
The CV segment continues to grow at the fastest rate and with volumes
expected to be strong AAL’s outlook continues to remain positive.
However, input price rise remains an overhang on profits and margins,
going forward. The stock is currently trading at | 478, 14.8x SY11E EPS of
| 32.4 and 10.9x SY12E EPS of | 44.1. We have valued the business at
12x SY12E EPS of | 43.8 to arrive at a valuation of | 529, that implies an
11% upside potential. Hence, we maintain our BUY rating on the stock.