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Automotive Axles 1QSY2013 performance highlights and results update

Contributed by Angel Broking

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 ATXL’s 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 company’s 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 Rs.198cr despite a 22.3% qoq decline in MHCV industry volumes, which is the key driver of the company’s 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 Rs.18cr and Rs.6cr respectively.

Outlook and valuation: During SY2012–14, 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.