Accumulate This Midcap Auto Ancillary Sector Stock In New Year 2023, Shares Likely To Surge

Stock Outlook & Returns

The stock last traded at Rs 8,960.65 apiece on NSE, 2.22% up from its previous close. It was opened at Rs 909.60 apiece. On 13 October 2022, the stock recorded its 52-week high at Rs 10,924.05 apiece and on 20 June 2022, it recorded its 52 week low at Rs 6,876.50 apiece, respectively. 

 It surged 2.2% in the past 1 week. It has fallen 7.97% in 1 month and 9.9% in the past 3 months, respectively. Over the past 1 year, it has given 6.33% positive return, 38.21% in 3 years and 22.12% in 5 years, respectively. 

Increase in content per vehicle

The ZFCV-WABCO merger has bring together two global leaders with highly complementary and innovative technology offering to serve future serving OEMs likes Autonomous, connectivity and electric in the trucks industry. including technologies in air suspension system, Automatic transmission, fleet management systems (FMS) and also ZF's leading position in driveline and Chassis technologies for cars and CVs. Government's Push for Green vehicle in the PLI scheme will benefit new production innovation for the company. In addition, CV volume will spur the demand for heavy vehicle and increase the sale for ZFCV. As the growth is directly link to economic activity, RBI has forecasted, GDP growth of 6.3% in FY23.

Revenue largely in-line with expectation

H1FY23 revenue grew by 44% QoQ due to higher growth contribution from the domestic OEM by 85% and 41% from Aftermarket sales. EBITDA margin expanded by 339bps YoY for the quarter, due to superior product mix and cost control initiatives. As a result, PAT grew by 78%. The company has reiterated that, 70% RM inflation has passed till date and expect the price to stabilise going forward. The content per vehicle is expected to increase by 20% from the current level due to the new emission and regulatory changes. During the quarter the company has outperformed the industry growth by 6.4% and company holds 85% market share in the air braking and safety products. Other advanced active safety features will become mandatory in the near future like Electronic Stability Control (ESC) Advanced Driver Assistance Systems (ADAS) & Autonomous emergency braking .to improve and advance the braking system to meet the new requirement of safety and efficiency guidelines.

The integration has led to leverage customer base

ZFCV enjoys leadership position in their product segment. Its technological leadership among auto ancillary companies and its prowess make it one of the few companies that have bargaining power with original equipment manufactures (OEM). The integration has led to sourcing from India and clear road map for future products in the global market especially in the area of E-Mobility. In India, the company has also nominated for EV bus component supplier.

Valuations

Given the strong fundamentals and product diversification, we believe ZFCV will be a direct beneficiary in the long run owing to economic growth, wider portfolio and governments thrust on infrastructure development. "The company's capex plan of Rs.1800cr in the next 10 years for higher export and new product innovation will enhance the overall revenue visibility. We except 24% earning CAGR over FY23E-25E and value ZFCV at 44x FY25E EPS and maintain our Accumulate rating at CMP with a target of Rs. 10,043," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.