WabcoIndia

October20,2014
SurjitArora
surjitarora@plindia.com
+912266322235
HussainKagzi
hussainkagzi@plindia.com
+912266322242
Rating
Price
TargetPrice
ImpliedUpside
Sensex
Nifty

Accumulate
Rs3,689
Rs3,802
3.1%
26,430
7,879

Wabcos (WILs) Q2FY15 results were below our estimates on account of lower
thanexpected gross margins. Topline grew by 18.5% YoY to Rs3.2bn (PLe:
Rs3.4bn),mainlyledbystrongtractionintheOEMsegment(grew50%YoY).Gross
marginsdeclinedby60bpsYoYonaccountofhigherrawmaterialcost(pertaining
to new product launches). We continue to maintain our positive stance on the
company as it is well positioned to leverage the rising content per vehicle in the
domestic MHCV market. WIL is likely to be the key beneficiary of recovery in
M&HCVvolumes,entryofglobalplayersintheIndianMarketandimplementation
ofsafetynormsbytheGovernmentforM&HCV.WereiterateourAccumulatecall
on the stock. However, we expect the stock to underperform in the near term,
giventhatitisalreadytradingat30.7xFY16Eearnings.

Toplinegrowthat18.5%YoYonhigherOEMsegmentrevenues:WILreported
topline growth at 18.5% YoY at Rs3.2bn (PLe: Rs3.4bn). OEM sales for the
quarter grew by 50.0% YoY at Rs1.5bn (Q1FY15 Rs1.4bn), whereas, the
spares/replacement sales stood at ~Rs550m, a growth of 22.2% YoY. OEM
segment reported robust growth on account of growth in higher tonnage
vehicles and increasing content/vehicle on account of new product launches.
Exportrevenuesdeclinedby9.7%YoYtoRs1.0bn(Q1FY15Rs1.1bn).Asaresult,
exportsaccountedfor~33.6%ofthetopline(44.1%inQ2FY14).

EBITDAmarginsimprovedby250bpsYoYonhigheroperatingleverage:EBITDA
for the quarter grew by 40.7% YoY to Rs506m (PLe: Rs548m), with EBITDA
margins improving by 250bps YoY to 15.7%. Gross margins declined by 60bps
YoY on account of higher raw material cost (pertaining to new product
launches). However, on account of higher operating leverage, there was a
220bpsreductioninemployeecostand90bpsdeclineinotherexpensesYoY.

(PricesasonOctober20,2014)
Tradingdata
MarketCap.(Rsbn)
Shareso/s(m)
3MAvg.Dailyvalue(Rsm)
Majorshareholders
Promoters
Foreign
DomesticInst.
Public&Other
StockPerformance
(%)
1M
6M
Absolute
(1.4)
80.8
Relative
1.0
64.0
HowwedifferfromConsensus
EPS(Rs)
PL
Cons.
2015
71.1
79.4
2016
120.4
124.6

70.0
19.0
66.4
75.00%
2.43%
9.09%
13.48%
12M
116.1
89.5
%Diff.
10.5
3.4

PricePerformance(RIC:WABC.BO,BB:WILIN)

Contd2
Keyfinancials(Y/eMarch)

Revenues(Rsm)
Growth(%)

EBITDA(Rsm)
PAT(Rsm)
EPS(Rs)
Growth(%)
NetDPS(Rs)

2013
9,659
(7.6)
1,942
1,310
69.0
(14.7)
5.0

2014
11,103
14.9
1,629
1,177
62.1
(10.1)
5.0

2015E
13,261
19.4
2,120
1,348
71.1
14.5
6.0

2016E
17,936
35.3
3,396
2,284
120.4
69.4
7.0

2013
20.1
22.2
22.2
7.1
35.5
53.4
10.8
0.1

2014
14.7
16.8
16.8
6.2
42.0
59.5
9.3
0.1

2015E
16.0
16.5
16.5
5.1
32.2
51.9
8.0
0.2

2016E
18.9
23.2
23.1
3.8
19.9
30.6
6.4
0.2

(Rs)
2,000
1,500
1,000
500

Source:Bloomberg

Oct13

Aug13

Jun13

Apr13

Feb13

Dec12

Oct12

Q2FY15ResultUpdate

OEMrevenuesgrewby50%;Marginslikelytoimprove

Profitability&Valuation
EBITDAmargin(%)
RoE(%)
RoCE(%)
EV/sales(x)
EV/EBITDA(x)
PE(x)
P/BV(x)
Netdividendyield(%)
Source:CompanyData;PLResearch

PrabhudasLilladherPvt.Ltd.and/oritsassociates(the'Firm')doesand/orseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresultinvestorsshouldbeawarethat
theFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthereport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Pleaserefertoimportantdisclosuresanddisclaimersattheendofthereport

WabcoIndia

HigherdepreciationchargeledtoadeclineinPAT:Depreciationchargeforthe
quarterincreasedby56.9%YoYtoRs116m(~Rs55mwasthechargeonaccount
ofNewCompaniesAct,wherethelifeofassetshasbeenreduced).Asaresult,
PATforthequartergrewbyonly7.2%YoYtoRs307m.

Revisingourearningsestimatesdownwardsby~5%inFY15EandFY16E:Our
ToplineestimateforFY15EremainsunchangedastheincreaseinOEMrevenues
is more or less compensated by the reduction in export revenues in FY15E.
However, we have lowered our margin assumption by 60bps to incorporate
lower than expected margins in Q2FY15. As a result, our FY15E earnings are
reviseddownwardsby5%.However,giventheimprovementinM&HCVgoods
segment(4thconsecutivepositivegrowthinSep14)andimplementationofABS,
we expect ~35% topline growth in FY16E. This would lead to a 300bps
improvementinmarginsto18.9%,inourview.

ABSimplementationlikelyby2015:ManagementindicatedthatABSislikelyto
beimplementedintheM&HCVsegmentbyQ1FY16.Thoughthemarginscould
be lower in ABS, we are building in incremental revenue of Rs1.5bn in FY16E.
Management indicated that as compared to earlier expectation of ABS
implementation in certain segments of M&HCV, it is likely to be implemented
acrosstheboard.

Strong balance sheet and free cash flow to support higher valuations: Given
thattheprofitabilityislikelytogrowataCAGRof~42%withamoderatecapex
forthenextcoupleofyears,weexpectfreecashgenerationofRs560minFY15E
and Rs900m in FY16E. The stock has traded at an average P/E of 2228x and
AverageP/BVof5.06.0x1yearforward.Atthecurrentmarketprice,thestock
istradingat52.3xFY15Eand30.7xFY16Eearnings.Inthenearterm,thestock
could be rangebound, though we are positive on the stock from a long term
perspective,giventhestrongparentageandrobustearningsgrowthtrajectory.
DelayinABSimplementationinM&HCVspaceisakeyrisktoourcall.

October20,2014

Exhibit1:

WabcoIndia

Q2FY15ResultOverview(Rsm)

Y/eMarch
Grossrevenues

Q2FY15

Q2FY14

YoYgr.(%)

Q1FY15

H1FY15

H1FY14

YoYgr.(%)

3,037

2,569

18.2

3,050

6,087

5,058

20.3

Otherincome

193

157

23.0

185

379

296

27.9

Netrevenues

3,230

2,726

18.5

3,236

6,466

5,354

20.8

Costofrevenues

1,899

1,589

19.5

1,860

3,759

3,050

23.2

As%ofSales

OtherExpenditure

As%ofSales

Staffcosts

As%ofSales

TotalExpenditure
EBITDA

EBITDAMargins(%)

Depreciation
EBIT

62.5

61.9

61.0

61.8

60.3

481

464

3.7

525

1,005

887

15.8

18.0

17.2

16.5

17.5

344

313

9.8

350

693

609

11.3

12.2

11.5

11.4

12.0

2,724

2,366

15.1

2,734

5,458

4,547

20.0

506

360

40.7

501

1,008

807

24.9

15.7

13.2

15.5

15.6

15.1

116

74

56.9

107

223

140

58.9

13.3
13.8

391

286

36.6

394

785

667

17.7

Interestexpenses,gross

47.7

0.01

48.9

Otherincome

51

129

(60.4)

33

85

258

(67.2)

440

414

6.3

428

868

924

6.0

128

123

4.3

121

250

278

(10.4)

29.1

29.7

28.3

28.7

30.1

312

291

7.2

307

619

645

PBT
Taxexpense

Effectivetaxrate(%)

Reportednetprofit

(4.1)

Source:CompanyData,PLResearch

October20,2014


IncomeStatement(Rsm)
Y/eMarch
2013
NetRevenue
RawMaterialExpenses
GrossProfit
EmployeeCost
OtherExpenses
EBITDA
Depr.&Amortization
NetInterest
OtherIncome
ProfitbeforeTax
TotalTax
ProfitafterTax
ExOditems/Min.Int.
Adj.PAT
Avg.SharesO/S(m)
EPS(Rs.)

9,659
5,172
4,487
1,070
1,475
1,942
217

126
1,852
542
1,310

1,310
19.0
69.0

2014

2015E

2016E

11,103
6,337
4,766
1,249
1,888
1,629
318
3
304
1,612
435
1,177

1,177
19.0
62.1

13,261

7,650
5,611
1,408
2,083
2,120
415

180
1,885
537
1,348

1,348
19.0
71.1

17,936
10,346
7,590
1,584
2,610
3,396
464

240
3,172
888
2,284

2,284
19.0
120.4

WabcoIndia

BalanceSheetAbstract(Rsm)
Y/eMarch
2013

2014

2015E

2016E

Shareholder'sFunds

TotalDebt
OtherLiabilities
TotalLiabilities
NetFixedAssets
Goodwill
Investments
NetCurrentAssets
Cash&Equivalents
OtherCurrentAssets
CurrentLiabilities
OtherAssets
TotalAssets

6,488
9
117
6,614
2,889

255
3,471
991
3,804
1,325

6,614

7,552
9
161
7,722
3,175

502
4,046
1,554
4,255
1,764

7,723

8,792
9
161
8,962
3,610

702
4,649
1,803
4,979
2,133

8,962

10,923
9
161
11,093
3,846

902
6,345
2,349
6,641
2,644

11,094

QuarterlyFinancials(Rsm)
Y/eMarch
Q3FY14

Q4FY14

Q1FY15

Q2FY15

3,156
462
14.7
96

17
383
55
329
329

3,236
501
15.5
107

34
428
121
307
307

3,230
507
15.7
116

52
444
128
315
315

CashFlowAbstract(Rsm)
Y/eMarch

2013

2014

2015E

2016E

C/FfromOperations
C/FfromInvesting
C/FfromFinancing
Inc./Dec.inCash
OpeningCash
ClosingCash
FCFF
FCFE

984
(701)
(109)
175
819
993
434
434

1,527
(857)
(109)
561
993
1,554
736
736

1,408
(1,051)
(109)
249
1,554
1,803
498
498

1,598
(900)
(152)
546
1,803
2,348
898
898

KeyFinancialMetrics
Y/eMarch
Growth

2013

2014

2015E

2016E

Revenue(%)
EBITDA(%)
PAT(%)
EPS(%)

(7.6)
(11.7)
(14.7)
(14.7)

14.9
(16.1)
(10.1)
(10.1)

19.4
30.1
14.5
14.5

35.3
60.2
69.4
69.4

16.0
10.2
16.5
16.5

18.9
12.7
23.1
23.2

(0.2)
55

(0.2)
66

51.9
8.0
32.2
5.1

30.6
6.4
19.9
3.8

Profitability
EBITDAMargin(%)
PATMargin(%)
RoCE(%)
RoE(%)

BalanceSheet
NetDebt:Equity
NetWrkngCap.(days)

Valuation
PER(x)
P/B(x)
EV/EBITDA(x)
EV/Sales(x)

EarningsQuality

20.1
13.6
22.2
22.2

14.7
10.6
16.8
16.8

(0.2)
93

(0.2)
56

53.4
10.8
35.5
7.1

59.5
9.3
42.0
6.2

NetRevenue
2,597
EBITDA
360
%ofrevenue
13.9
Depr.&Amortization
85
NetInterest

OtherIncome
30
ProfitbeforeTax
305
TotalTax
102
ProfitafterTax
203
Adj.PAT
203
Source:CompanyData,PLResearch.

Eff.TaxRate
29.3
27.0
28.5
28.0
OtherInc/PBT
6.8
18.9
9.5
7.6
Eff.Depr.Rate(%)
5.5
6.7
7.4
7.3
FCFE/PAT
33.1
62.6
36.9
39.3
Source:CompanyData,PLResearch.*adj.forRs18/shareforinsurancevalue

October20,2014

WabcoIndia

PrabhudasLilladherPvt.Ltd.
3rdFloor,SadhanaHouse,570,P.B.Marg,Worli,Mumbai400018,India
Tel:(9122)66322222Fax:(9122)66322209
RatingDistributionofResearchCoverage

60%
%ofTotalCoverage

50.0%
50%
40%

31.7%

30%
18.3%

20%
10%

0.0%
0%
BUY

Accumulate

Reduce

Sell

PLsRecommendationNomenclature

BUY

Over15%OutperformancetoSensexover12months

Accumulate

: OutperformancetoSensexover12months

Reduce

UnderperformancetoSensexover12months

Sell

: Over15%underperformancetoSensexover12months

TradingBuy

Over10%absoluteupsidein1month

TradingSell

: Over10%absolutedeclinein1month

NotRated(NR)

Nospecificcallonthestock

UnderReview(UR)

: Ratinglikelytochangeshortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
informationandisnotforcirculation.ThisdocumentisnottobereportedorcopiedormadeavailabletootherswithoutpriorpermissionofPL.Itshouldnotbe
consideredortakenasanoffertosellorasolicitationtobuyorsellanysecurity.
Theinformationcontainedinthisreporthasbeenobtainedfromsourcesthatareconsideredtobereliable.However,PLhasnotindependentlyverifiedtheaccuracy
orcompletenessofthesame.NeitherPLnoranyofitsaffiliates,itsdirectorsoritsemployeesacceptanyresponsibilityofwhatsoevernaturefortheinformation,
statementsandopiniongiven,madeavailableorexpressedhereinorforanyomissiontherein.
Recipientsofthisreportshouldbeawarethatpastperformanceisnotnecessarilyaguidetofutureperformanceandvalueofinvestmentscangodownaswell.The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
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Wemayfromtimetotimesolicitorperforminvestmentbankingorotherservicesforanycompanymentionedinthisdocument.

October20,2014