The company has a near-monopoly on the manufacture of air brakes in India
Moneylife Digital Team
Wabco TVS (India), which started off as a joint venture between the TVS group and Wabco Holdings Inc, pioneered the manufacture of air-assisted and air-brake systems for commercial vehicles in India. The company supplies original equipment (OE) fitments for manufacturers of commercial vehicles and trailers. It has three manufacturing facilities—two in Chennai and one in Jamshedpur. The company’s product profile includes air compressors, actuation systems, control valves, anti-lock brake systems and electronic brake systems.
Wabco TVS has achieved over 85% share of business in the OE segment and more than 75% share of the after-sales market. It also exports to Australia, Malaysia, UK, Singapore, South Asia, North America, Venezuela and the Middle East. Wabco Holdings Inc acquired majority ownership in Wabco TVS (India) in 2009, thereby strengthening Wabco’s presence in India. Until June 2012, Wabco was allowed to use the TVS trademark in sales, marketing and distribution of products. The company is now called Wabco India (effective 2 August 2011).
The commercial vehicle industry registered a significant revival in 2010-11 with a growth of 33% in medium and heavy commercial vehicles (MHCV) sales volumes. This growth increased the company’s turnover as well as sales in the after-sales market and exports. Wabco TVS achieved a turnover of Rs899 crore compared to a turnover of Rs609 crore in the previous year.
For 2011-12, the government has projected 8.5% GDP (gross domestic product) growth. The industrial sector is projected to grow by 7.9% mainly due to growth in manufacturing. The agriculture sector is expected to grow at 2.1% and services sector at 9.9%. All this will result in improved freight availability; hence, the MHCV industry is likely to register a positive growth of 10%-12%. Regulatory changes are helping too. To ensure road safety, the government has introduced mandatory fitment of anti-lock braking systems for commercial vehicles carrying hazardous goods since October 2006 and for tractor-trailers and buses with national permits since October 2007.
Local market growth opportunities through increase in content per vehicle of new systems like automated manual transmission, electronically controlled air suspension and clutch actuation systems, etc, will result in increased business opportunities for Wabco. The company has planned capital expenditure of Rs60 crore for FY11-12, taking into account the industry’s growth in the previous fiscal.
Wabco TVS reported revenue of Rs244.99 crore in the quarter ended 30 June 2011 compared to Rs202.38 crore in the corresponding previous quarter, a growth of 21%. Net profit was up 22.01% to Rs34.15 crore from Rs27.99 crore during the year-ago period. Operating profit for the June quarter was Rs52.02 crore, up 20% over Rs43.22 crore in the first quarter of FY10-11. Operating profit margin (OPM) for the June quarter was 21%. Over the past five quarters, the company’s average revenues and operating profit growth were 48% and 60%, respectively. Average OPM for the past five quarters was 22%. Based on the annualised results for the June 2011 quarter, the company’s market-cap to revenue was 2.41 times and market-cap to operating profit was 11.36. The company’s board has recommended a dividend of Rs5 per share for the year ended 31 March 2011, a payout of Rs9.48 crore.
As part of its future plans, Wabco TVS plans to develop and launch a lift-axle control system for the Indian market. It also proposes to design and develop hydraulic brake boosters and park brake modules and series production of valve devices for North American original equipment manufacturers and value engineered footbrake valves with integrated switches for Indian customers. The stock has totally bucked the recent market crash, hitting an all-time high in mid-August. Buy for the long term.