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Business Posted On Friday, July 23, 2010 | Performance highlights by Angel Broking
Automotive Axles (AAL) posted excellent results for 3QSY2010. While top-line growth was above over estimates (largely volume driven), earnings beat our estimates driven by better operating leverage. We have revised our estimates:
1) ~7% upward revision in revenue to account robust top-line growth in 3QSY2010, 2) marginal increase in OPM on better operating leverage, and 3) ~10% revision in earnings. We maintain a Buy on the stock. Robust performance, Operating leverage aids high bottom-line growth: For 3QSY2010, AAL registered 198% yoy growth in net sales to Rs196cr (Rs65.9cr), which was above our expectation of Rs176cr. The company's top-line has been recovering following the uptick in CV volumes. During the quarter, MHCV volumes recorded almost 80% yoy growth (AAL derives almost 95% revenue from this segment), which helped the company to clock robust top-line growth.
2) EBITDA margins came in almost in line with expectations at 14% for 3QSY2010, up 252bp yoy. Better operating leverage helped the company clock higher EBITDA margins. Net profit spiked to Rs14.6cr, up 442% yoy on a low base and higher operating leverage.
Outlook and Valuation: We expect the recovery in CV demand to aid the company register a CAGR of around 74% in net sales and 145% in net profit over SY2009-11E. At the CMP of Rs491, the stock is trading at15x SY2010E and 12.7x SY2011E earnings of Rs32.7 and Rs38.5 respectively, which is lower than its historical five-year average of 15x. We believe that the recovery in the CV cycle will help the stock in catching up with its historical valuations. Hence, we maintain a Buy on the stock, with a Target Price of Rs578, at which level the stock would trade at 15x FY2011E EPS.
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Friday, September 03, 2010