Driving Growth with regulatory tailwinds…
About the stock: ZF Commercial Vehicle Control Systems India (ZFCV) (erstwhile Wabco India), now part of the ZF Group, is the market leader in CV braking space and a technology-focused complete solutions provider.
• FY24 sales channel mix – OEM ~49%, Aftermarket ~12%, exports ~39%
• FY24 Product mix: Sale of products ~89%, Services ~11%
Q3FY25 Results: On standalone basis, revenues for the quarter came in at ₹956 crore, up 8% YoY. EBITDA in Q3FY25 stood at ₹175 crore with EBITDA margins at 18.3% (up 290 bps QoQ). PAT in Q3FY25 came in at ₹125 crore (up 25% YoY).
Investment Rationale
• Regulatory tailwinds to accelerate ADAS adoption, boost for ZFCV: ZFCV has demonstrated strong leadership in supplying braking solutions to the domestic M&HCV space with regulatory safety led persistent content per vehicle increase. The company has also in the past showcased its capability in providing ADAS solutions to domestic OEMs with partial adoption of the same by some players. Now, as we understand govt. wants to further upgrade commercial vehicles and hence proposes that all new passenger vehicles designed to carry more than eight individuals, as well as buses and trucks, will be required to be fitted with Advanced Emergency Braking Systems (AEBS), Driver Drowsiness and Attention Warning Systems (DDAWS), and Lane Departure Warning Systems (LDWS). These advanced driver assistance systems (ADAS) are intended to minimize accidents by automatically engaging the brakes in the event of a potential collision, alerting drivers to drowsiness or unintentional lane changes, and improving overall driver awareness. They propose to implement the same starting April 2026. We see this as a big positive for ZF CV as it can potentially double its existing content per vehicle from US$ 600 to over US$ 1,000 in times to come. The company’s current ADAS offerings, directly address these mandates, providing a competitive edge.
• Global focus to support export growth in near to medium term: Exports is a significant growth driver for ZFCV contributing ~40% of 9MFY25 sales. The company is a reliable global supplier of advanced automotive components with strategic focus on high-value product lines, particularly air compressors and actuators, catering to the sophisticated demand of European OEMs. With ZF group intent to substantially increase sourcing from India and ZFCV recently commissioning a new plant down South, export growth is seen robust going forward (healthy double digit CAGR).
Rating and Target Price
• ZFCV has maintained its leadership position in domestic M&HCV space, supported by its wide product portfolio, deep OEM relationships, and increasing aftermarket penetration. With long run way of content increase and healthy cash positive B/S, we have a positive view on the company and assign a BUY rating valuing ZFCV at ₹ 16,300 i.e. 50x PE on FY27E
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