Wabco’s (WIL’s) Q1FY15 results were above our estimates on account of better‐ than‐expected top‐line. Top‐line grew by 23.1% YoY to Rs3.2bn (PLe: Rs2.8bn), mainly led by strong traction in the OEM segment (grew 43% YoY).

1.
Wabco India
Higher OEM revenues lead to top‐line beat
July 22, 2014
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Q1FY15 Result Update
Surjit Arora
surjitarora@plindia.com
+91‐22‐66322235
Hussain Kagzi
hussainkagzi@plindia.com
+91‐22‐66322242
Rating Accumulate
Price Rs3,611
Target Price Rs3,695
Implied Upside 2.3%
Sensex 25,715
Nifty 7,684
(Prices as on July 21, 2014)
Trading data
Market Cap. (Rs bn) 68.5
Shares o/s (m) 19.0
3M Avg. Daily value (Rs m) 42.2
Major shareholders
Promoters 75.00%
Foreign 2.50%
Domestic Inst. 8.73%
Public & Other 13.77%
Stock Performance
(%) 1M 6M 12M
Absolute 17.5 88.0 116.2
Relative 15.1 67.0 88.6
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 77.8 77.2 0.8
2016 123.2 115.7 6.5
Price Performance (RIC: WABC.BO, BB: WIL IN)
Source: Bloomberg
0
500
1,000
1,500
2,000
Oct‐12
Dec‐12
Feb‐13
Apr‐13
Jun‐13
Aug‐13
Oct‐13
(Rs)
Wabco’s (WIL’s) Q1FY15 results were above our estimates on account of better‐
than‐expected top‐line. Top‐line grew by 23.1% YoY to Rs3.2bn (PLe: Rs2.8bn),
mainly led by strong traction in the OEM segment (grew 43% YoY). OEM segment
reported robust growth on account of growth in higher tonnage vehicles and
increasing content/vehicle on account of 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&HCV volumes, entry of global players in the Indian
Market and implementation of safety norms by the Government for M&HCV. We
reiterate our ‘Accumulate’ call on the stock. However, we expect the stock to
underperform in the near term, given that it is already trading at 29.3x FY16E
earnings.
 Top‐line growth at 23.1% YoY on higher exports: WIL reported top‐line growth
at 23.1% YoY at Rs3.2bn (PLe: Rs2.8bn). OEM sales for the quarter grew by 43%
YoY at Rs1.4bn (Q4FY14 ‐ Rs1.2bn), whereas, the spares/replacement sales
stood at Rs532m, a growth of 18.0% YoY. Exports for the quarter grew by 6%
YoY to Rs1.1bn (~5% decline QoQ). As a result, exports accounted for ~36.4% of
the top‐line.
 EBITDA margins declined by 150bps YoY on higher raw material cost: EBITDA
for the quarter grew by 12.1% YoY to Rs501m (PLe: Rs438m), with EBITDA
margins declining by 150bps YoY to 15.5%. Gross margins declined by 190bps
YoY on account of higher raw material cost. On a sequential basis, EBITDA
margins improved by 80bps as exports accounted for ~36% of top‐line as against
40% of top‐line in Q4FY14.
Contd…2
Key financials (Y/e March) 2013 2014 2015E 2016E
Revenues (Rs m) 9,659 11,103 13,265 17,326
Growth (%) (7.6) 14.9 19.5 30.6
EBITDA (Rs m) 1,942 1,629 2,189 3,390
PAT (Rs m) 1,310 1,177 1,476 2,336
EPS (Rs) 69.0 62.1 77.8 123.2
Growth (%) (14.7) (10.1) 25.4 58.2
Net DPS (Rs) 5.0 5.0 5.0 7.0
Profitability & Valuation 2013 2014 2015E 2016E
EBITDA margin (%) 20.1 14.7 16.5 19.6
RoE (%) 22.2 16.8 17.9 23.3
RoCE (%) 22.2 16.8 17.9 23.3
EV / sales (x) 7.0 6.0 5.0 3.8
EV / EBITDA (x) 34.8 41.1 30.4 19.4
PE (x) 52.3 58.2 46.4 29.3
P / BV (x) 10.6 9.1 7.7 6.2
Net dividend yield (%) 0.1 0.1 0.1 0.2
Source: Company Data; PL Research

2.
July 22, 2014 2
Wabco India
 Higher depreciation charge led to a decline in PAT: Depreciation charge for the
quarter increased by 61.2% YoY to Rs107m (Rs55m was the charge on account
of New Companies Act, where the life of assets has been reduced). As a result,
PAT for the quarter de‐grew by 13.4% YoY to Rs307m.
 ABS implementation likely by 2015: Management indicated that ABS is likely to
be implemented in the M&HCV segment by Oct 2015. Though the margins could
be lower in ABS, we are building in an incremental revenue of Rs1.7bn 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
across the board.
 Strong balance sheet and free cash flow to support higher valuations: Given
that the profitability is likely to grow at a CAGR of ~41% with a moderate capex
for the next couple of years, we expect free cash generation of Rs448m in FY15E
and Rs1.0bn in FY16E. The stock has traded at an average P/E of 20‐25x and
Average P/BV of 3.5‐5x 1 year forward. At the current market price, the stock is
trading at 46.4x FY15E and 29.3x FY16E earnings. In the near term, the stock
could be range‐bound, though we are positive on the stock from a long term
perspective, given the strong parentage and robust earnings growth trajectory.
Delay in ABS implementation in M&HCV space is a key risk to our call.
Exhibit 1: Q1FY15 Result Overview (Rs m)
Y/e March Q1FY15 Q1FY14 YoY gr. (%) Q4FY14 FY15E FY14 YoY gr. (%)
Net Sales 3,236 2,628 23.1 3,156 13,265 11,103 19.5
Expenditure
Raw Material 1,860 1,461 27.3 1,829 7,496 6,337 18.3
% of Net Sales 57.5 55.6 58.0 56.5 57.1
Salaries & Wages 350 296 18.1 333 1,414 1,249 13.2
% of Net Sales 10.8 11.3 10.6 10.7 11.2
Other Exp. 525 424 23.8 531 2,165 1,888 14.7
% of Net Sales 16.2 16.1 16.8 16.3 17.0
Total Expenditure 2,734 2,181 25.4 2,694 11,076 9,474 16.9
EBITDA 501 447 12.1 462 2,189 1,629 34.4
EBITDA Margin (%) 15.5 17.0 14.7 16.5 14.7
Depreciation 107 66 61.2 96 389 318 22.2
Net interest 0 ‐ 0 ‐ 3
Non Operative Income 33 129 (73.9) 16 250 304 (17.8)
PBT 428 509 (16.0) 383 2,051 1,612 27.2
Tax Total 121 155 (22.0) 55 574 435 32.0
Tax Rate‐Total (%) 28.3 30.5 14.3 28.0 27.0
Reported Profit 307 354 (13.4) 328 1,476 1,177 25.4
Adj. PAT 307 354 (13.4) 328 1,476 1,177 25.4
Source: Company Data, PL Research

3.
July 22, 2014 3
Wabco India
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 9,659 11,103 13,265 17,326
Raw Material Expenses 5,172 6,337 7,496 9,772
Gross Profit 4,487 4,766 5,769 7,554
Employee Cost 1,070 1,249 1,414 1,584
Other Expenses 1,475 1,888 2,165 2,579
EBITDA 1,942 1,629 2,189 3,390
Depr. & Amortization 217 318 389 445
Net Interest — 3 — —
Other Income 126 304 250 300
Profit before Tax 1,852 1,612 2,051 3,245
Total Tax 542 435 574 909
Profit after Tax 1,310 1,177 1,476 2,336
Ex‐Od items / Min. Int. — — — —
Adj. PAT 1,310 1,177 1,476 2,336
Avg. Shares O/S (m) 19.0 19.0 19.0 19.0
EPS (Rs.) 69.0 62.1 77.8 123.2
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 984 1,527 1,499 1,834
C/F from Investing (701) (857) (1,051) (799)
C/F from Financing (109) (109) (109) (152)
Inc. / Dec. in Cash 175 561 340 883
Opening Cash 819 993 1,555 1,894
Closing Cash 993 1,555 1,894 2,777
FCFF 434 737 589 1,234
FCFE 434 737 589 1,234
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) (7.6) 14.9 19.5 30.6
EBITDA (%) (11.7) (16.1) 34.4 54.9
PAT (%) (14.7) (10.1) 25.4 58.2
EPS (%) (14.7) (10.1) 25.4 58.2
Profitability
EBITDA Margin (%) 20.1 14.7 16.5 19.6
PAT Margin (%) 13.6 10.6 11.1 13.5
RoCE (%) 22.2 16.8 17.9 23.3
RoE (%) 22.2 16.8 17.9 23.3
Balance Sheet
Net Debt : Equity (0.2) (0.2) (0.2) (0.2)
Net Wrkng Cap. (days) 93 56 55 64
Valuation
PER (x) 52.3 58.2 46.4 29.3
P / B (x) 10.6 9.1 7.7 6.2
EV / EBITDA (x) 34.8 41.1 30.4 19.4
EV / Sales (x) 7.0 6.0 5.0 3.8
Earnings Quality
Eff. Tax Rate 29.3 27.0 28.0 28.0
Other Inc / PBT 6.8 18.9 12.2 9.2
Eff. Depr. Rate (%) 5.5 6.7 6.9 7.1
FCFE / PAT 33.1 62.6 39.9 52.8
Source: Company Data, PL Research. *adj. for Rs18/share for insurance value
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 6,488 7,552 8,920 11,104
Total Debt 9 9 9 9
Other Liabilities 117 161 161 161
Total Liabilities 6,614 7,722 9,090 11,275
Net Fixed Assets 2,889 3,175 3,636 3,791
Goodwill — — — —
Investments 255 502 702 902
Net Current Assets 3,471 4,046 4,752 6,581
Cash & Equivalents 991 1,554 1,894 2,776
Other Current Assets 3,804 4,255 4,981 6,398
Current Liabilities 1,325 1,764 2,123 2,593
Other Assets — — — —
Total Assets 6,614 7,723 9,090 11,274
Quarterly Financials (Rs m)
Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15
Net Revenue 2,726 2,597 3,156 3,236
EBITDA 360 360 462 501
% of revenue 13.2 13.9 14.7 15.5
Depr. & Amortization 74 85 96 107
Net Interest — — — —
Other Income 129 30 16 33
Profit before Tax 415 304 383 428
Total Tax 123 102 55 121
Profit after Tax 292 202 328 307
Adj. PAT 292 202 328 307
Source: Company Data, PL Research.

4.
July 22, 2014 4
Wabco India
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Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
29.0%
51.4%
19.6%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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