Multi Baggers

Wabco-TVS (India)

Wabco-TVS (India) was established as a joint venture (JV) between Belgium’s WABCO Holdings Inc., a US $ 4 billion global manufacturer of safety and control systems and India’s TVS Group, for manufacture of braking solutions for the automobile sector.

Presently, Wabco is the majority shareholder with 75% stake in the company, while TVS Group does not own any shares, having transferred its rights to Wabco, as per re-organisation of businesses and mutual understanding in 2007. DIIs hold 10.33% while FIIs own 1.37%, with balance 13.30% held by public, as of 30-Sep-10.

The company manufactures conventional braking products, advanced braking systems, and other related air compression products and systems, mainly for the commercial vehicles (CV) at its factories in Chennai (2) and Jamshedpur (1). In addition, it also has an advanced software design and development centre in Chennai.

 
With over 1,000 employees, the company enjoys market leadership position in the domestic CV market, commanding:

1. Over 85% market share in the Original Equipment (OE) segment, and 

2. More than 75% market share in the after-market segment.

This award-winning company boasts of a clientele which includes all major CV and trailer manufacturers such as Ashok Leyland, Force Motors, Tata Cummins, Swaraj Mazda, M&M, Eicher Motors, Volvo, Bharat Earth Movers, TAFE and Caterpillar. Besides, the company exports to UK, Australia, Malaysia, Singapore, South Asia, North America, Venezuela and the Middle East.

The company has been reported excellent financials with every passing quarter. For FY10, it reported sales of Rs. 608 crore and EBITDA of Rs. 136 crore (margins 22.3%). It earned net profit of Rs. 79 crore, earning 12.97% net margins, resulting in an EPS of Rs. 41.53. RoE for the year was 33.6%.

During 9 months ended 31-Dec-10, company has already surpassed the previous year 12 month numbers. Sales surged to Rs. 647 crore and EBITDA jumped to Rs. 148 crore, on 22.9% EBITDA margin, with Q3 alone helping garner Rs. 51 crore of EBITDA on 23.1% margins.

The company’s market dominance is re-enforced by the fact that it can pass on all the cost increase to final customer, as both topline and bottomline are growing on a proportion basis, on a YoY comparison. Net profit for 9mFY11 was Rs. 93 crore with net margins expanding to 14.38%. EPS for the 9 months of the current year is Rs. 49, much higher than FY10’s Rs. 41.40. 

The company has a very tiny equity of only Rs. 9.48 crore, divided into 1.9 crore shares of FV Rs. 5 each. Its networth, as on 30-09-10, stood at Rs. 332 crore, being debt-free. Although a thinly traded stock on the exchanges, its market cap is just Rs. 1,830 crore.

For FY11, the company will easily report sales of Rs. 875 crore with net profit of over Rs. 124 crore, resulting in an EPS of around Rs. 65. This results in a discounting by (PE multiple of) just 14.7x. This is a very attractive valuation for a market leader with no direct competition, as also backed with foreign pedigree.

Share, now ruling at 975 on the NSE, qualifies a safe investment buy from the medium-to-long term perspective, as it has potential to touch Rs. 1,200 in the next 6 months.