Wabco India Ltd.

Wabco India Ltd.

 www.wabco.com  &  www.wabco-auto.com

 

What makes sense about Wabco India ?

• Global Leader in Providing Braking System in the World.
• Strong Presence in India with more than 80% market share.
• Majority of the Indian CV's are its Clients e.g. Tata Motors, Volvo, Ashok Leyland, M&M, Navistar,Dailmer Chrysler, Scania etc.
• The company has consistently focusing on increasing per vehicle content every year to improve the revenue and gaining strong foot hold in the Indian CV business.
• Indian CV has been slow in last 2 years however looking at the size and the demand of CV's in next decade its clear that vehicles with heavy tonnage are likely to increase with more better roads than what they are today.
• With quality of roads increasing, cost of road transportation decreasing and more better engines and vehicles coming in place, it is natural that CVs demand shall increase.
• Indian government is keen on improving the safety standards on Indian roads and has proposed to have mandatory to use ABS and such high end braking system compulsory for vehicles. 
• There is still lot of scope for Mining, Construction, Logistics movement in India which wld definitely demand for more CVs in future.
• Wabco Global is looking at Indian facility as an export base for their certain markets like South America  and certain North American Markets. It has new plant in Mahindra SEZ which is clearly focused for Export.
• The company at present clearly enjoys the pricing power due to near monopoly in terms of technology. The Product also has its critical importance in the overall vehicle.
• From the Broad points mentioned I feel this is a Company which has strong Economic Moats, and with growing economy it has scope to increase its revenue, and bottomline in next 5 years and improve ROCE% further provided it does not go for any high capex( unlikely as current capex is done)
• RISK: However it is linked to the cyclicality of the CV business.
• The advantage is that during the weak CV cycles, it is the best time to gather such business for long term.

I feel valuing this company on fundamentals and rating them on PE or EPS or BV etc would not justify its real potential. Understanding its broad strength would play a bigger role. I could be wrong in my view and thoughts.