Automotive Axles Q3 Results Review - Overall Miss; Outlook Likely To Be Muted: Axis Securities

Axis Securities Report

Automotive Axles Ltd. posted weaker than expected revenue/Ebitda/ profit after tax than our estimates. Revenue at ~Rs 541 crore, down17%/7% YoY/QoQ, (6% Miss) versus medium and heavy commercial vehicle industry production volume which grew by 9%/3% YoY/QoQ (as per SIAM December- 24 data).

Ebitda at Rs 58 crore was down 26%/12% YoY/QoQ (10% Miss) on account of higher personnel costs and other expenses as a percentage to sales, partly offset by higher gross margins. Ebitda margins stood at 10.7% versus 11.3% in Q2 FY23 (11.9% in Q3 FY24, our estimate was 11.2%).

PAT stood at Rs 39 crore, down 23%/13% YoY/QoQ(8% Miss), largely following the Ebitda; partly offset by higher non operating income.

Outlook:

The CV industry has witnessed tonnage growth over the last two years (in terms of FY19) inspite of production volumes still being lower than peaks of FY19. Going forward the growth rate is likely to moderate in FY24/25E owing to the high base of FY23.

Furthermore, with exports growth dependent on its parent Meritor Global, we see limited margin expansion potential. With commodity prices expected to remain at similar levels in near future, we forecast an Ebitda/PAT compound annual growth rate of 1%/2% over FY23-26E.

Valuation and Recommendation:

Entering into an election year and having a cautious outlook on the CV industry we value the stock at 16 times FY26 earning per share (earlier 17 times December- 25 EPS) to arrive at our target price of Rs 1,800/share, which implies a downside of 10% from the current market price.

As a result, we downgrade the stock from 'Hold' to 'Sell' (previously 'Buy' to 'Hold' in Q2 FY24 report).

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