4QFY2019 Result Update | Auto Ancillary

May 28, 2019

Automotive Axles

HOLD

CMP

`1192

Target Price

`1400

Investment Period

12 Months

Performance Update

Quarterly (` cr)

Q4FY19

Q4FY18

% yoy Q3FY19

% qoq

Stock Info

Net sales

481

469

486

-1%

Sector

Auto Ancillary

EBITDA

Market Cap (` cr)

1,830

Net Debt (` cr)

EBITDA margin (%)

12.1%

11.6%

11.5%

Beta

0.9

Adjusted PAT

29.84

26.40

13.0%

30.79

-3%

52 Week High / Low

1552/991

Avg. weekly Volume

4,058

Face Value (`)

In Q4FY2019, net sales of Automotive Axle Ltd. (AAL) were marginally up by

BSE Sensex

39,683

Nifty

11,924

2% on yoy basis and stood at `481cr on the back of slowdown in commercial

Reuters Code

ATOA.BO

vehicle sales during the quarter. Gross margin improved by

36bps yoy

Bloomberg Code

ATXL IN

resulting in an overall improvement of OPM by 49bps yoy to 12.14%, which

Shareholding Pattern (%)

aided EBDTA to grow at 7% yoy to `58cr as compared to `55cr in Q4FY2018.

Promoters

71.0

MF / Banks / Indian Fls

9.5

Profit for Q4FY2019 jumped by 13% yoy to `30cr owing to the stable interest

FII / NRIs / OCBs

1.3

and depreciation cost. Overall, Automotive Axle has

delivered good

Indian Public / Others

18.2

performance in tough environment where OEM sales and production has been

Abs.(%)

1yr

3yr

flat during the quarter under review.

Sensex

10.5

13.6

44.0

Management has given very cautious guidance of flattish growth in revenue for

Automotive Axles

0.3

(11.5)

58.4

FY2020 due to the ongoing slowdown and upcoming BS-VI transition, which as

per management may impact the overall industry growth.

The management expects to deliver revenue in the range of `1,900-2,000cr in

FY20. However, management believes that growth should pick-up from

Q1/Q2FY2021.

PBT margin is expected to be in the range of 8.7-9.2% on account of higher

depreciation and interest costs.

Key things to watch for: (1) Growth in revenue from slip suspension;

(2)

Capacity utilization & expansion plan; and (3) Increasing pie from exports

segment.

3years performance chart

Outlook & Valuation: We believe that AAL is comfortably placed to tap the

2000

upcoming opportunity in the industry owing to improving road infra, BS-VI pre-

1800

buying and foray into new segment coupled with expansion of capacity by 35-

1600

1400

40%. However, medium term scenario looks tough, but long term prospects

1200

seem positive. At the CMP of `1,192, the stock is available at 15X its FY2021E

1000

800

EPS of `78. We assign a multiple of 17.5X and recommend HOLD on AAL with

600

a Target Price of

`1,400, implying an upside of 18% over the next 9-12

400

200

months.

Key Financials

Y/E March (` cr)

FY18

FY19

FY20E

FY21E

Net Sales

1,519

1,939

1,980

2,131

Source: Company, Angel Research

% chg

Net Profit

122

109

118

% chg

(10)

EBITDA (%)

11.0%

11.8%

12.0%

11.9%

EPS (Rs)

P/E (x)

16.3

15.0

P/BV (x)

4.0

3.3

2.8

2.4

Kripashankar Maurya

RoE (%)

18.9

22.6

17.3

16.3

022-39357800 Ext: 6004

RoCE (%)

27.9

30.3

23.5

23.2

[email protected]

EV/EBITDA

10.4

7.9

7.6

6.7

Source: Company, Angel Research

Valuation done based on 27th May, 2019 closing price

Please refer to important disclosures at the end of this report

Automotive Axles | 4QFY2019 Result Update

Company Background

Established in 1981, Automotive Axles Limited (AAL) is a joint venture of Kalyani Group

and Meritor Inc., USA. With manufacturing facilities located at Mysore (Karnataka) and

Jamshedpur (Jharkhand), the company manufactures drive axles, non-drive axles, front

steer axles, specialty & defence axles and drum & disc brakes. It provides these

products to major domestic and global manufacturers of trucks & buses pertaining to

segments such as light, medium & heavy commercial vehicles, military & off-highway

vehicles, aftermarket and exports. As a continuous process, the company believes in

introducing new products regularly in order to meet the emerging needs of the

commercial vehicle market.

About JV with Meritor

The products manufactured by AAL are based on technology provided by the parent

Meritor Inc., USA. The technology transfer by Meritor Inc. is routed through its 51%

subsidiary in India - Meritor HVS (India) Limited (MHVSIL). MHVSIL is also responsible

for customer sourcing, interaction and marketing for AAL, with almost the entire sales of

AAL routed through MHVSIL. MHVSIL is 51:49 JV between Meritor International, USA

and Bharat Forge with Meritor holding majority stake. AAL manufactures and sells

axles, components, brake components and subassemblies to MHVSIL, which in turn

sells it to the end customer.

Outlook & Valuation: We believe that AAL is comfortably placed to tap the upcoming

opportunity in the industry owing to improving road infra, BS-VI pre-buying and foray

into new segment coupled with expansion of capacity by 35-40%. However, medium

term scenario looks tough, but long term prospects seem positive. At the CMP of

`1,192, the stock is available at 15X its FY2021E EPS of `78. We assign a multiple of

17.5x and recommend HOLD on AAL with a Target Price of `1,400, implying an

upside of 18% over the next 9-12 months.

May 28, 2019

Automotive Axles | 4QFY2019 Result Update

Quarterly performance

In Cr

Q4FY19

Q4FY18

Q3FY19

YOY %

QOQ%

Net Sales

481

469

486

2.5%

-1.0%

Total Income

481

469

486

2.5%

-1.0%

Total Expenditure

423

414

430

2.0%

-1.7%

Raw Material Consumed

292

330

396

-12%

-26%

Stock Adjustment

-60

-180%

Purchase of Finished Goods

COGS

340

330

335

3.1%

1.4%

Employee Expenses

9.2%

-6.5%

% of sales

6.1%

5.7%

6.4%

-6%

Other Expenses

-8%

-16%

As a % of sales

11.1%

12.3%

13.0%

Raw Material Consumed

60.7%

70.3%

81.4%

Stock Adjustment

10.0%

0.0%

-12.4%

Purchase of Finished Goods

0.0%

COGS

70.7%

70.3%

69.0%

Gross Margin %

29.3%

29.7%

31.0%

-36

Other Expenses

11.1%

12.3%

13.0%

EBITDA

Other Income

0.47

0.9

0.7

-47%

-34%

Interest

0.01

0.2

-93%

-92%

PBDT

58.83

55.34

56.60

Depreciation

9.97

-16%

-13%

PBT

48.86

43.45

45.15

12%

Tax

19.03

12%

33%

PAT

13%

-3%

Ratios

BPS

EBITDA margin (%)

12.14%

11.65%

11.54%

PAT margin %

6.20%

5.63%

6.34%

-14

Tax rate %

38.94%

39.24%

31.79%

-30

715

Source: Company, Angel Research

May 28, 2019

Automotive Axles | 4QFY2019 Result Update

Income Statement

Y/E March (` cr)

FY18

FY19

FY20E

FY21E

Total operating income

1,519

1,939

1,980

2,131

% chg

Total Expenditure

1,352

1,710

1,742

1,877

Raw Material

1,079

1,380

1,396

1,494

Personnel

124

119

128

Selling and Administration Expenses

Others Expenses

151

207

208

234

EBITDA

167

229

238

254

% chg

(% of Net Sales)

11.0%

11.8%

12.0%

11.9%

Depreciation& Amortization

EBIT

124

183

173

182

% chg

(5)

(% of Net Sales)

Interest & other Charges

Other Income

Recurring PBT

128

185

166

180

% chg

(11)

Tax

PAT (reported)

122

109

118

% chg

(10)

(% of Net Sales)

5.5

6.3

5.5

Basic & Fully Diluted EPS (Rs)

% chg

(10)

Source: Company, Angel Research

May 28, 2019

Automotive Axles | 4QFY2019 Result Update

Balance sheet

Y/E March (`cr)

FY18

FY19

FY20E

FY21E

SOURCES OF FUNDS

Equity Share Capital

15.1

Reserves& Surplus

429

523

614

712

Shareholders Funds

444

538

629

727

Total Loans

110

Other Liabilities

Total Liabilities

446

604

739

787

APPLICATION OF FUNDS

Net Block

118

109

172

164

Capital Work-in-Progress

116

Investments

Long Term Loans & Advances

Current Assets

570

642

753

848

Inventories

137

184

163

175

Sundry Debtors

350

346

434

467

Cash

139

Loans & Advances

Investments & Others

Current liabilities

285

321

362

403

Net Current Assets

285

321

391

445

Other Non Current Asset

Total Assets

446

604

739

787

Source: Company, Angel Research

Cash Flow

Y/E March (`cr)

FY18

FY19

FY20E

FY21E

Profit before tax

128

185

166

180

Depreciation

Change in Working Capital

(22)

(49)

Interest / Dividend (Net)

Direct taxes paid

Others

(245)

(92)

(9)

(107)

Cash Flow from Operations

182

240

235

(Inc.)/ Dec. in Fixed Assets

(30)

101

(Inc.)/ Dec. in Investments

(9)

(0)

(1)

Cash Flow from Investing

(27)

100

Issue of Equity

Inc./(Dec.) in loans

-50

Others

(15)

(253)

(335)

(235)

Cash Flow from Financing

(15)

(187)

(290)

(285)

Inc./(Dec.) in Cash

(4)

Opening Cash balances

Closing Cash balances

139

Source: Company, Angel Research

May 28, 2019

Automotive Axles | 4QFY2019 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Disclosure of Interest Statement

Automotive Axles

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or

relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

May 28, 2019