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February 7, 2013
Automotive Axles
Performance Highlights
Y/E September (` cr) Net Sales EBITDA EBITDA Margin (%) Adj. PAT
Source: Company, Angel Research
NEUTRAL
CMP Target Price
% chg (yoy) (32.2) (50.5) (343)bp (69.2) 4QSY12 170 9 5.2 0 % chg (qoq) 16.5 106.9 405bp 7,003.5
`363 -
Investment Period
Stock Info Sector Market Cap (` cr)
Net Debt (` cr)
Auto Ancillary 584 43 0.3 560/309 2,093 10.0 19,580 5,939 ATOA.BO ATXL@IN
Automotive Axles (ATXL) reported better-than-expected results for 1QSY2013, driven by sharp improvement in operating performance on a sequential basis with EBITDA margins witnessing an expansion of 405bp to 9.3%. We revise upwards our EBITDA margin estimates for SY2013 to factor in the strong performance during the quarter. We expect the growth outlook for the MHCV industry, which is the key driver of ATXLs revenues, to remain challenging for the most part of SY2013E. However, the expected easing of interest rates will revive MHCV demand in SY2014, leading to a revival in the companys performance. Nevertheless, we believe that the current valuation, to some extent, factors in the growth revival in SY2014. We therefore maintain our Neutral rating on the stock. Better-than-expected operating performance: For 1QSY2013, the top-line posted a strong sequential growth of 16.5% to `198cr despite a 22.3% qoq decline in MHCV industry volumes, which is the key driver of the companys revenues. The EBITDA margin improved 405bp sequentially, primarily due to a 520bp decline in raw-material expense as a percentage of sales. However, on a yoy basis, the top-line declined substantially by 32.2%, in-line with the 31.6% yoy decline in MHCV volumes. Led by lower utilization levels which reduced the operating leverage benefits, EBITDA margin contracted 343bp yoy. As a result, the operating profit and net profit declined significantly by 50.5% and 69.2% yoy to `18cr and `6cr respectively. Outlook and valuation: During SY201214, we expect ATXL to report a modest CAGR of ~8% and ~7% in its top-line and bottom-line, respectively. We believe that the current valuation of 10.6x SY2014E earnings captures the expected revival in earnings growth in SY2014. Due to limited upside from current levels, we maintain our Neutral rating on the stock.
Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 71.0 20.5 0.4 8.1
3m 3.6 (4.5)
SY2011 1,012 51.6 58 30.6 11.5 38.1 9.5 2.2 25.7 31.4 0.6 5.0
SY2012 941 (7.1) 45 (21.8) 10.8 29.8 12.0 2.0 17.5 23.3 0.6 5.8
SY2013E 934 (0.7) 37 (17.7) 10.2 24.5 14.8 1.9 13.2 18.6 0.6 6.3
SY2014E 1,103 18.0 52 40.0 10.7 34.3 10.6 1.7 16.9 22.7 0.5 4.9
Yaresh Kothari
022-3935 7800 Ext: 6844 yareshb.kothari@angelbroking.com
1QSY13 198 139 70.1 15 7.6 26 13.0 180 18 9.3 2 8 0 9 9 4.6 3 33.0 6 3.1 15.1 4.0
1QSY12 293 208 71.1 14 4.9 33 11.3 255 37 12.7 2 6 0 29 29 9.8 9 31.3 20 6.7 15.1 13.1
% chg (yoy) (32.2) (33.1) 5.4 (21.7) (29.5) (50.5) (20.1) 23.8 65 (68.4) (68.4) (66.8) (69.2)
4QSY12 170 128 75.3 12 7.1 21 12.4 161 9 5.2 2 7 0 0 0 0.1 0 61.7 0 0.1 15.1
% chg (qoq) 16.5 8.5 24.7 22.3 11.5 106.9 10.3 4.9 (27) 3,961.1 3,961.1 2,071.3 7,003.5
SY2012 940 672 71.5 56 6.0 111 11.8 839 101 10.7 9 27 2 67 67 7.1 22 32.4 45 4.8 15.1
SY2011 1,012 730 72.1 53 5.2 114 11.2 896 117 11.5 7 23 1 87 87 8.6 30 33.9 58 5.7 15.1 38.1
% chg (yoy) (7.1) (7.9) 6.9 (2.4) (6.3) (13.5) 40.9 17.1 373.9 (23.6) (23.6) (27.1) (21.8)
(69.2)
0.1
7,003.5
29.8
(21.8)
Top-line at `198cr: For 1QSY2013, ATXLs top-line posted a strong sequential growth of 16.5% to `198cr despite a 22.3% qoq decline in MHCV industry volumes, which is the key driver of companys revenues. However, on a yoy basis, the top-line declined substantially by 32.2%, in-line with the 31.6% yoy decline in MHCV volumes.
MHCV volume
106,581 80,816
13.0 6.5 6.5
81,791
92,901 90,280
11.7 4.8
71,335
79,536 61,781
6.3
(12.8)
(14.4)
(31.6)
(39.4)
170
(32.2)
198
1QSY11
2QSY11
3QSY11
4QSY11
1QSY12
2QSY12
3QSY12
4QSY12
1QSY11
2QSY11
3QSY11
4QSY11
1QSY12
2QSY12
3QSY12
4QSY12
1QSY13
February 7, 2013
1QSY13
Operating margins recovers sequentially: For 1QSY2013, the companys EBITDA margin improved ~400bp sequentially, primarily due to a 520bp decline in rawmaterial expense as a percentage of sales. However lower utilization levels on a yoy basis reduced the operating leverage benefits. Hence the EBITDA margin contracted ~340bp yoy. As a result, operating profit and net profit declined significantly by 50.5% and 69.2% yoy to `18cr and `6cr respectively.
3.3
3.1
0.1 0.1
6.1
1.0 0.0
1QSY11
2QSY11
3QSY11
4QSY11
1QSY12
2QSY12
3QSY12
4QSY12
1QSY13
1QSY11
2QSY11
3QSY11
4QSY11
1QSY12
2QSY12
3QSY12
4QSY12
February 7, 2013
1QSY13
Investment arguments
Slowdown in the MHCV segment to restrict top-line growth: ATXL derives ~95% of its revenue from the MHCV segment, which has witnessed decline in growth in recent times due to relatively high interest rates and slowdown in industrial activity. Declining raw-material prices to help maintain operating margins: The recent trend of stable to declining raw-material prices is expected to mitigate the negative impact of decline in volume off-take in SY2013. We expect operating margins to remain in the range of 10-11% over SY2013 and SY2014.
SY2009 SY2010 SY2011 SY2012 SY2013E SY2014E 291 211 14 66 732 609 40 83 1,111 829 156 37 89 1,042 711 234 34 64 1,028 692 234 34 69 1,214 812 284 39 78
February 7, 2013
Jun-07
Aug-05
Mar-11
Oct-03
Apr-10
Sep-04
May-08
May-09
Feb-12
Jan-13
Jul-06
Dec-07
Jun-06
Aug-08
Mar-07
Nov-10
Oct-05
Feb-10
P/E (x) FY13E FY14E 16.2 14.8 12.1 22.8 20.9 11.1 23.8 10.3
^
EV/EBITDA (x) FY13E 10.2 6.3 6.0 13.9 11.2 6.3 9.2 4.3 FY14E 9.1 4.9 5.0 11.7 8.1 5.0 7.5 3.8 13.9 10.6 9.8 19.8 15.6 9.4 18.1 5.3
May-09
RoE (%) FY13E 32.9 13.2 18.5 18.8 15.4 21.7 22.9 5.6 FY14E 29.1 16.9 19.7 18.2 18.2 21.1 24.7 10.3
FY12-14E EPS CAGR (%) 30.8 7.4 14.6 19.5 20.2 21.6 56.2 0.2
Company background
Automotive Axles (ATXL), a JV between Kalyani Group and Meritor Heavy Vehicle Systems, USA (35.5% stake each), is one of India's largest independent manufacturers of rear drive axle assemblies. ATXL's product portfolio includes a wide range of rear drive axles and air brakes, which are used in commercial vehicles. In SY2011, ATXL also forayed into the automotive brakes business by acquiring a brake manufacturing facility from Kalyani Global Engineering for `14.6cr; it currently forms ~23% of ATXL's total revenue. The company exports to the US, France, Italy, China, Australia and Brazil. Exports account for 6% of the company's total revenue. ATXL's domestic clients include Ashok Leyland (~55% of revenue), Tata Motors (~25% of revenue), Eicher Motors, Asia Motor Works and Indian army, amongst others.
February 7, 2013
Apr-12
Jan-13
Jul-11
February 7, 2013
SY09 15 160 175 45 14 234 276 131 145 7 146 9 11 127 64 82 234
SY10 15 189 204 71 14 288 281 149 133 8 234 9 11 214 87 147 288
SY11 15 229 244 49 12 1 306 317 171 146 4 13 327 11 15 301 184 143 306
SY12 15 256 271 45 12 2 331 361 185 176 19 12 1 288 2 32 253 163 124 331
SY13E 15 276 291 52 12 2 357 404 216 188 20 12 1 316 7 34 275 180 136 357
SY14E 15 310 325 48 12 2 387 443 250 193 22 12 1 382 21 39 323 223 160 387
February 7, 2013
February 7, 2013
Key ratios
Y/E September Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.2 1.2 2.7 0.3 0.7 17.6 0.2 0.3 13.8 0.2 0.4 7.6 0.2 0.5 5.7 0.1 0.2 8.1 1.0 101 91 96 97 2.4 41 52 33 58 3.4 36 57 41 49 2.8 40 68 59 49 2.4 40 68 58 49 2.6 39 68 59 44 5.5 6.0 5.6 25.1 23.5 23.3 31.4 31.6 25.7 23.3 22.6 17.5 18.6 18.3 13.2 22.7 23.0 16.9 5.0 0.8 1.2 4.4 6.4 0.3 3.9 9.8 0.7 2.6 17.4 4.3 0.3 20.8 9.2 0.7 3.5 21.5 7.5 0.2 24.6 7.9 0.7 3.0 16.2 14.1 0.2 16.5 6.9 0.7 2.8 12.7 15.6 0.2 12.2 7.7 0.7 3.1 15.8 14.0 0.1 16.0 6.4 6.4 18.6 2.7 115.6 29.1 29.2 43.0 8.5 134.9 38.1 38.1 53.6 10.0 161.4 30.1 29.8 48.2 10.0 179.6 24.5 24.5 44.8 10.0 192.4 34.3 34.3 56.6 10.0 215.0 56.8 19.5 3.1 0.8 2.2 18.3 2.5 12.5 8.4 2.7 2.3 0.9 7.0 2.1 9.5 6.8 2.2 2.8 0.6 5.0 1.9 12.0 7.5 2.0 2.8 0.6 5.8 1.8 14.8 8.1 1.9 2.8 0.6 6.3 1.7 10.6 6.4 1.7 2.8 0.5 4.9 1.5 SY09 SY10 SY11 SY12 SY13E SY14E
February 7, 2013
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Automotive Axles No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
February 7, 2013
10