Automotive Axles surges 8%, hits record high on healthy business outlook

The company is a beneficiary of the current cyclical recovery in the domestic commercial vehicle space, especially the medium & heavy commercial vehicle (M&HCV) domain.

Shares of Automotive Axles hit a record high of Rs 1,874.75, on ralliying 8 per cent on the BSE in Monday’s trade on healthy business outlook. The stock of the auto ancillary company has surged 18 per cent in the past two trading days. It surpassed previous high of Rs 1,829.50 touched on June 3, 2022. In comparison, the S&P BSE Sensex was down 0.20 per cent at 52,804 points at 10:27 am.

Automotive Axles is a beneficiary of the current cyclical recovery in the domestic commercial vehicle space, especially the medium & heavy commercial vehicle (M&HCV) domain. It has a healthy cash positive balance sheet with a consistent history of positive CFOs & FCFs.

Automotive Axles is the largest independent manufacturer of rear axle drive assemblies in India (primarily for CVs; M&HCV). Rear drive axles comprise around 60 per cent of its topline with brakes share at around 20 per cent and other parts comprising the rest. It counts all major CV OEMs as its clients with prominent names being Tata Motors, Ashok Leyland, VECV, M&M among others.

For January-March quarter of fiscal 2022 (Q4FY22), the company’s revenue has grown by 30 per cent to Rs 553 crore as compared to Rs 427 crore in Q4FY21. The company said Q1FY23 demand is estimated slightly lower than Q4FY22. Earnings before interest depreciation and tax (ebitda) margin improved 125 bps at 11.31 per cent from 10.05 per cent in a year ago quarter.

The management sees a momentum from now onwards the market is very good, the demand outlook is very good. “We see this momentum continue to pick up unless there is some major problem happens which is outside of our control, commodity, war, COVID I think we are in a very good path to see, our performance probably of this year,” the management said in Q4 earnings conference call. Notably, it expects domestic M&HCV segment to witness volume growth of around 30 per cent in FY23E.

Building in the positives, analysts at ICICI Securities expects sales, PAT to grow at a CAGR of 25 per cent, 48 per cent, respectively, in FY22- 24E with consequent RoCE seen at around 25 per cent in FY24E. “We maintain our BUY rating on Automotive Axles valuing it at | 2,140 i.e. 20x P/E on FY24E EPS,” the brokerage firm said in its auto sector update.