Wabco IndiaFebruary 14,...

ICIC

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May 25, 2020

SELL

Wabco India (WABIND)

CMP: ₹ 6,875 Target: ₹ 5,500 (-20%) Target Period: 12 months

Expensive valuations, sell in market/tender in Open offer

Wabco India (WIL) reported muted performance in Q4FY20 on the back of

sharp decline in CV space. Net sales came off by 38.9% YoY to ₹ 405

crore. EBITDA for the quarter came in at ₹ 52 crore with corresponding

EBITDA margins at 12.8% (down 88 bps QoQ). Consequent PAT in Q4FY20

stood at ₹ 32 crore, down 39.6% YoY. Full year FY20 sales stood at ₹ 1,930

crore (down 32.4% YoY) and consequent PAT at ₹ 159 crore, down 44%

YoY. Dividend per share for FY20 stood at ₹ 10/share

Spectre of CV downturn weighs heavy!

WIL has a strong foothold in the domestic CV safety & security (primarily

braking solutions) segment. The CV space in India has been the worst

affected in the ongoing auto slowdown. While cyclical and structural

demand side factors (slow economic and sluggish freight movement,

activity, high installed base, financing issues, revised axle load norms, idle

system capacity and cost escalation under BS-VI norms) were already

weighing on the sector, additional disruption brought about by Covid-19

on demand as well supply side have further elongated CV downcycle

domestically. Meaningful recovery in the space is expected to begin only in

H2FY21E, contingent upon pickup in economic growth and system

normalisation post BS-VI implementation. Separately, ongoing destocking

in US Class 8 truck market (~20% of WIL revenues) further clouds demand

outlook for WIL.

Closure of parent merger deal, revised open offer at ₹ 7067.5

The global parent of Wabco India i.e. Wabco Holdings Inc. has executed a

definite agreement for merger with ZF Friedrichshafen AG of Germany (ZF)

for an all cash deal as on 29th May 2020. Pursuant to this, ZF had

announced an open offer for existing shareholders of Wabco India at ₹

6,318/share on April 3, 2019. However, with all regulatory approvals now in

place and underlying transaction now complete, ZF group has come out

with a revised open offer as per SEBI guidelines. The revised open offer,

provides an exit opportunity at a price of ₹ 7067.5/share, which in this case

includes all minority shareholders (25% stake). The open offer is expected

to open mid-July’ 20 with final pay-out by mid-August’20 (2.5 months away

as on date).

Valuation & Outlook

Valuations (81x FY20P EPS of ₹ 84) at WIL, in our opinion are disconnected

from prevailing challenges on the demand front, with relative resilience in

price performance centred around market expectations around the open

offer price. On the back of elongated CV recovery cycle, we assign SELL

rating on WIL and advice existing investors to either tender their shares in

the forthcoming open offer (₹ 7067.5/share, 2.5 months away) or for

simplicity of operations sell shares in open market. We ascribe a fair value

of ₹ 5500 to WIL i.e. 65x P/E on FY22EPS.

K ey F in an cials F Y18 F Y19 F Y20P F Y21E F Y22E C AG R (F Y20P -22E )

Net S a les 2,568.9 2,854.2 1,929.6 1,439.3 1,794.1 -3.6%

E B ITD A 394.2 409.9 251.5 162.4 252.2 0.1%

E B ITD A Margins (% ) 15.3 14.4 13.0 11.3 14.1

Net P rofit 272.8 282.3 158.8 99.8 160.6 0.6%

E P S (₹) 143.8 148.8 83.7 52.6 84.7

P /E 47.8 46.2 82.1 130.6 81.2

R oNW (% ) 17.9 15.9 8.4 5.1 7.6

R oC E (% ) 25.1 23.0 11.8 6.8 10.2

Key Financial Summary

Source: Company, ICICI Direct Research

Particulars

P articu lar Am o u n t

Marke t C apita liza tion ₹ 13040.2 C rore

Tota l D ebt (F Y20P ) ₹ 0 C rore

C ash & Inv. (F Y20P ) ₹ 1003.6 C rore

E V ₹ 12036.6 C rore

52 week H /L (₹) 6980 / 5297

E quity capita l ₹ 9.5 C rore

F ace va lue ₹ 5

Price chart

02,0004,0006,0008,00010,00012,00014,000

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Wabco India (LHS) Nifty (RHS)

Research Analyst

Shashank Kanodia, CFA

[email protected]

Jaimin Desai

[email protected]

ICICI Securities | Retail Research 2

ICICI Direct Research

Company Update | Wabco India

Financial story in charts

Exhibit 1: Topline trend 2

,43

6.2

2,6

50

.6

1,7

27

.9

1,2

93

.2

1,6

16

.3

24.3

8.8

(34.8)

(25.2)

25.0

(50)

(40)

(30)

(20)

(10)

-

10

20

30

-

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

FY18 FY19 FY20P FY21E FY22E

(%)

(₹ c

rore

)

Net Sales Growth (%)


Exhibit 2: EBITDA, EBITDA margin trend

39

4.2

40

9.9

25

1.5

16

2.4

25

2.2

15.3 14.4

13.0

11.3

14.1

-

2

4

6

8

10

12

14

16

18

-

50

100

150

200

250

300

350

400

450


(%)

(₹ c

rore

)

EBIDTA EBIDTA Margin (%)


Exhibit 3: Profitability trend

27

2.8

28

2.3

27

2.8

99

.8

16

0.6

10.6

9.9

10.6

9.0

8

9

9

10

10

11

11

-

50

100

150

200

250

300


(%)

(₹ c

rore

)

PAT PAT Margin (%)


CV space is expected to witness delayed demand

recovery. Consequently, net sales at WIL are seen

de-growing at a CAGR of 3.6% over FY20P-22E

Negative operating leverage to weigh on margin

profile with margins seen recovering to 14.1% by

FY22E vs. 13.0% in FY20P

PAT CAGR is expected to be flat courtesy decline in

sales and gradual improvement in margins




Exhibit 4: Return ratios trend

20.9 20.1

25.5 23.6 25.1

23.0

11.8

6.8 10.2

24.2 25.9

36.0 37.7

47.5

37.0

18.7

9.5

19.6

0

10

20

30

40

50

FY14 FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

(%)

RoCE RoIC


Exhibit 5: Valuation Summary

S ales G ro wth E P S G ro wth P E E V /E B ITD A R o NW R o C E

(₹ cr) (% ) (₹) (% ) (x) (x) (% ) (% )

F Y18 2568.9 24.3 143.8 0.0 47.8 31.0 17.9 25.1

F Y19 2854.2 11.1 148.8 3.5 46.2 29.7 15.9 23.0

F Y20P 1929.6 -32.4 83.7 -43.7 82.1 47.9 8.4 11.8

F Y21E 1439.3 -25.4 52.6 -37.1 130.6 72.7 5.1 6.8

F Y22E 1794.1 24.7 84.7 60.9 81.2 46.5 7.6 10.2

Source: Bloomberg, ICICI Direct Research

Exhibit 6: Wabco currently trades at ~81x FY22E EPS of ₹ 84.7 per share

0

2000

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6000

8000

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12000

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Ap

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n-1

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Oct-

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Ja

n-2

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Ap

r-2

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(₹)

Price 104x 88x 73x 57x 42x 26x 11x

Source: Bloomberg, ICICI Direct Research

Slowing revenue growth is seen limiting recovery in

return ratio profile. WIL continues to be a capital

efficient company with RoIC expected to improve

to ~20% levels by FY22E




Financial Summary

Exhibit 7: Profit and loss statement ₹ crore

(Year-en d March ) F Y19 F Y20P F Y21E F Y22E

To tal o p eratin g In co m e 2,854.2 1,929.6 1,439.3 1,794.1

G rowth (% ) 11.1 -32.4 -25.4 24.7

R aw Mate ria l E xpenses 1,822.2 1,148.7 821.2 1,042.5

E mployee E xpenses 253.6 265.7 257.1 264.4

O ther E xpenses 368.4 263.7 198.6 235.0

Tota l O pera ting E xpenditure 2,444.2 1,678.1 1,276.9 1,541.9

E B ITD A 409.9 251.5 162.4 252.2

G rowth (% ) 4.0 -38.7 -35.4 55.2

D eprecia tion 71.4 90.1 93.6 100.5

Inte rest 0.0 1.9 1.6 1.2

O ther Income 72.5 63.9 66.2 64.2

P B T 411.0 223.3 133.5 214.7

E xceptiona l items 0.0 0.0 0.0 0.0

Tota l Tax 128.7 64.5 33.6 54.1

P AT 282.3 158.8 99.8 160.6

G rowth (% ) 3.5 -43.7 -37.1 60.9

E P S (₹) 148.8 83.7 52.6 84.7


Exhibit 8: Cash flow statement ₹ crore


P ro fit after Tax 272.8 158.8 99.8 160.6

Add: D eprecia tion 61.7 90.1 93.6 100.5

(Inc)/dec in C urrent Asse ts -137.3 341.5 142.3 -102.7

Inc/(dec) in C L and P rovisions 167.2 -257.1 -65.2 48.8

C F fro m o p eratin g activ ities 366.1 335.2 272.0 208.4

(Inc)/dec in Investments -147.5 -228.9 -200.0 -50.0

(Inc)/dec in F ixed Assets -93.5 -131.8 -50.0 -75.0

O thers 6.3 8.9 9.0 -6.5

C F fro m in vestin g activ ities (262.0) (377.5) (220.2) (146.5)

Issue /(B uy back) o f E quity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds 0.0 0.0 0.0 0.0

D ividend pa id & dividend tax -18.3 -22.9 -19.0 -19.0

O thers 3.4 -23.2 -1.6 -1.2

C F fro m fin an cin g activ ities (14.9) (46.1) (20.6) (20.2)

Net C ash flow 89.2 -88.4 31.2 41.7

O pening C ash 266.9 549.6 461.2 492.5

C lo s in g C ash 356.1 461.2 492.5 534.1


Exhibit 9: Balance Sheet ₹ crore


L iabilities

E quity C apita l 9.5 9.5 9.5 9.5

R eserve and S urplus 1,516.4 1,885.1 1,965.9 2,107.6

To tal S h areh o ld ers fu n d s 1,525.9 1,894.6 1,975.4 2,117.1

Tota l D ebt 0.0 0.0 0.0 0.0

D e fe rred Tax L iability 30.3 14.1 14.1 14.1

To tal L iab ilities 1,556.3 1,917.4 1,998.3 2,139.9

Assets

G ross B lock 752.5 1,026.1 1,086.1 1,161.1

L ess: Acc D eprecia tion 393.6 555.1 648.7 749.2

Net B lo ck 358.9 471.0 437.4 411.9

C apita l WIP 52.4 30.0 20.0 20.0

Tota l F ixed Asse ts 411.3 500.9 457.4 431.9

Investments 445.7 542.4 742.4 792.4

Inventory 132.4 112.6 86.8 108.1

D ebtors 648.3 363.5 268.1 334.2

L oans and Advances 87.3 71.3 53.2 66.3

O the r current asse ts 6.3 11.6 8.7 10.8

C ash 356.1 461.2 492.5 534.1

Tota l C urrent Asse ts 1,230.4 1,020.2 909.2 1,053.6

C reditors 532.4 156.5 118.3 147.5

P rovisions 26.5 14.1 14.1 14.1

O the r C urrent L iabilities 80.0 94.3 70.3 87.7

Tota l C urrent L iabilities 638.9 264.9 202.8 249.3

Net C u rren t Assets 591.4 755.3 706.4 804.3

O ther non-current Asse ts 53 82 61 76

Ap p licatio n o f F u n d s 1,556.3 1,917.4 1,998.3 2,139.9


Exhibit 10: Key ratios


P er sha re da ta (₹)

E P S 148.8 83.7 52.6 84.7

C ash E P S 186.5 131.2 102.0 137.6

B V 938.4 998.8 1,041.5 1,116.2

D P S 9.0 10.0 10.0 10.0

C ash P e r S ha re 289.7 243.2 259.6 281.6

O p eratin g R atio s (% )

E B ITD A Margin 14.4 13.0 11.3 14.1

E B IT / Ne t sa les 11.9 8.4 4.8 8.5

P AT Margin 9.9 8.2 6.9 9.0

Inventory days 19.3 21.3 22.0 22.0

D ebtor days 52.7 29.6 30.0 30.0

C reditor days 81.1 68.8 68.0 68.0

R etu rn R atio s (% )

R oE 15.9 8.4 5.1 7.6

R oC E 23.0 11.8 6.8 10.2

R oIC 37.0 18.7 9.5 19.6

V alu atio n R atio s (x)

P /E 46.2 82.1 130.6 81.2

E V / E B ITD A 29.7 47.9 72.7 46.5

E V / Net S a les 4.3 6.2 8.2 6.5

Marke t C ap / S a les 4.6 6.8 9.1 7.3

P rice to B ook V a lue 7.3 6.9 6.6 6.2

S o lven cy R atio s

D ebt/E quity 0.0 0.0 0.0 0.0

C urrent R a tio 2.1 3.3 3.3 3.3

Q u ick R atio 1.8 2.6 2.6 2.6





RATING RATIONALE

ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorizes them as Buy,

Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is

defined as the analysts' valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]




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reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or wil l be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also

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companies mentioned in the report.

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