Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| More

I-direct Instinct - Automotive Axles - ICICI Direct

Posted On: 2021-05-07 05:40:36 (Time Zone: UTC)

Automotive Axles (AAL), established in 1981, is co-promoted by the Kalyani Group (35.5% stake) and Meritor Inc. (US, 35.5% stake). AAL is the largest independent manufacturer of rear axle drive assemblies in India (primarily for CVs; MHCV). It is also a prominent brake manufacturer. Rear drive axles comprise ~60% of its topline with brakes share at ~20% and other parts comprising the rest. AAL counts all major CV OEMs as its clients with prominent being Ashok Leyland, M&M, Volvo, Daimler India, Tata Motors among others. It has four manufacturing locations pan India with capacity pegged at ~20,000 units/month for axles, ~120,000 units/month for brakes.


Infra push, scrappage policy to propel healthy CV growth

Commercial vehicle (CV) segment is a cyclical industry. Currently, we have seen it turn the corner of its usual two year down cycle. January-March 2021 volume prints by industry majors like Tata Motors, Ashok Leyland and Eicher Motors (VECV arm) reaffirm our thesis with healthy double digit sequential pick up in volumes. FY21 domestic sales volumes in the CV space were at ~5.7 lakh units, down 44% from the peak clocked in FY19 i.e. ~10 lakh units. Within the CV space, M&HCV saw a sharper decline at ~60% over the two-year period with industry volumes being pushed back by ~12 years while decline was limited to ~33% in the LCV space with segmental volumes being pushed back by ~4 years. Going forward, however, given the government's push on infrastructure development amid growth oriented Union Budget 2021-22 and recently announced scrappage policy promoting sales of new fuel efficient vehicles for Indian roads, we feel the CV industry will bounce back sharply and grow in excess of 30-35% in the next two years, withstanding the minor hiccups due to Covid resurgence. With AAL deriving 90%+ of its revenues from the CV segment, especially the M&HCV sub-segment, we expect it to be a natural beneficiary of the same. With this, coupled with its penchant to launch new products as well as break into new OEMs, AAL is well poised to clock ~37% sales CAGR in FY21E-23E.

Capital efficient business model, unlevered balance sheet

AAL, over the years, has demonstrated healthy capital efficiency with FY16-20 average RoE, RoCE, RoIC at ~15%, 23%, 25%, respectively. In normal times, it clocks an asset turnover of ~3x, realises ~10-12% EBITDA margins and has working capital cycle of <=60 days thereby ensuring core RoIC >=20%. On the balance sheet front, AAL had gross debt of ~Rs. 35 crore as of FY20, with cash & cash equivalents at ~Rs. 74 crore, thereby making it a net debt free company. Over the years, its leverage has been quite minimal. Also, with capex executed in the recent past, the unlevered nature of balance sheet is expected to persist, going forward. On the cash flow front, it has been a consistent cash generator i.e. positive CFO, with cumulative 10 years (FY11-20) CFO at ~Rs. 800 crore while FCF in the aforesaid period is at ~Rs. 350 crore. Healthy b/s and consistent cash generation bodes well and acts as a good margin of safety to our investment thesis.

Valuation & Outlook

With cyclical recovery envisaged in the CV space, we expect sales to grow at a CAGR of ~37% in FY21E-23E to ~Rs. 1500 crore in FY23. PAT in the aforesaid period is expected to grow to ~Rs. 95 crore in FY23E with capital efficiency reviving to ~20% levels (RoCE, RoIC). We are also enthused by the Vision 2025 statement at AAL, wherein the management's intent is to grow profitably ahead of industry including exports. With favourable risk-reward at hand, we ascribe BUY rating to the stock with a target price of Rs. 1,260 i.e. 20 x P/E on FY23E numbers.

For details, click on the link below:

Shares of AUTOMOTIVE AXLES LTD. was last trading in BSE at Rs.1065 as compared to the previous close of Rs. 1042.25. The total number of shares traded during the day was 567 in over 129 trades.

The stock hit an intraday high of Rs. 1065 and intraday low of 1046.15. The net turnover during the day was Rs. 597369.

Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

KEC International: Company Update - Building on diversification - HDFC Securities

LIC Housing Finance - Q4 FY21 Result Update - YES Securities

Entertainment Network Ltd - Beating on solutions business - ICICI Securities

Asahi India Glass - Operating leverage, product mix aid margins - ICICI Securities

Whirlpool of India - Market leading revenue growth - ICICI Securities

Lemon Tree Hotels - Wait for recovery gets longer - ICICI Securities

LIC Housing Finance - Stupendous growth momentum; needs to shore up provisioning and capital buffer - ICICI Securities

Quant Pick - Bank of Baroda - ICICI Direct

Company Update - Amara Raja Batteries - Investor Event Outcome - ICICI Direct

Q4FY21 Result Update - Bhel - ICICI Direct

Q4FY21 Company Update - NRB Bearings - ICICI Direct

CESC - Q4FY21 First Cut - ICICI Direct

Q4FY21 Result Update - Entertainment Network India - ICICI Direct

LIC Housing Finance Results Review Report - Balance sheet beefs up; P&L to stay soft - HDFC Securities

Jubilant FoodWorks 4QFY21 Results Review Report - Missing excitement; recovery priced in - HDFC Securities

BFSI Sector Update - MFI Consultation Paper Takeaways - Incrementally positive for NBFC-MFIs - HDFC Securities

Q4FY21 Result Update - JK Cement - ICICI Direct

Q4FY21 Result Update - Minda Industries - ICICI Direct

Stock Tales - Indo Count Industries - ICICI Direct

IPO Review - Krishna Institute of Medical Sciences Ltd - ICICI Direct

Q4FY21 Company Update - Greenply Industries - ICICI Direct

IPO Review - Dodla Dairy Ltd - ICICI Direct

Lemon Tree Hotels - Q4FY21 First Cut - ICICI Direct

Jubilant Foodworks - Q4FY21 investor call takeaways - YES Securities

Greenply Industries Ltd - Q4 FY21 Result Update - YES Securities

Whirlpool of India Ltd - Q4 FY21 Result Update - YES Securities

New India Assurance Report - CoRs disappoint yet again - HDFC Securities

Maintain BUY on Kajaria Ceramics - Performance shines through; outlook bright - HDFC Securities

Retain ADD on Deccan Cement - Volume strong; high other expense dents margin - HDFC Securities

Reiterate ADD on NHPC - Lower generation impacts earnings - HDFC Securities

Maintain BUY on JK Cement - Robust volume and utilisation - HDFC Securities

Maintain BUY on DLF - Gaining traction - HDFC Securities

Maintain BUY on Capacite Infraprojects - Marginal miss - HDFC Securities

DLF Ltd - Q4 FY21 Result Update - YES Securities

Greenply Industries Ltd - Q4FY21 first cut - YES Securities

Coal India - Coal makes a comeback - ICICI Securities

Kajaria Ceramics - Q4FY21 beat largely priced in - ICICI Securities

JK Cement - Expansion to drive volume growth - ICICI Securities

Info Edge India - Concerns around Zomato's gig work unwarranted - ICICI Securities

Bharat Heavy Electricals - Higher provisioning impacts margins - ICICI Securities

Mahindra Lifespace Developers - Well poised for growth; initiate with BUY - ICICI Securities

Kajaria Ceramics - Q4FY21 First Cut - ICICI Direct

Gladiator Stocks - Tata Metaliks - ICICI Direct

Q4FY21 Result Update - Gail (India) - ICICI Direct

Q4FY21 Result Update - Engineers India - ICICI Direct

IPO Review - Shyam Metalics & Energy Ltd - ICICI Direct

Coal India - Q4FY21 First Cut - ICICI Direct

Capacite Infraprojects - Q4 FY21 results first cut: Robust performance - YES Securities

Cochin Shipyard - Q4 FY21 results first cut: Strong performance - YES Securities

CARE Ratings - Q4 FY21 results first cut: Stellar Performance - YES Securities

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020