Geojit Financial Services has raised its target price on Wabco India Ltd (WIL) to Rs 7,918 per share on the long-term growth outlook. The target price of the mid-cap auto ancillary stock has an upside potential of almost 23 percent from the current market price of Rs 6,434 per share on Friday (January 17).

Wabco India quoted at Rs 6,450 apiece on Tuesday on BSE, mildly lower by 0.11 percent. The stock opened at the day's high of Rs 6,599.95 and has touched the day's low at Rs 6,426.65.

In the last one-year, Wabco India shares have returned 2 percent to investors although the 10-year return on the stock is a strong an over 854 percent.

Analysts at Geojit Financial Services are of the view that the company is poised to benefit from the new BS-VI norms, which will kick-in from April 1, 2020. Wabco India holds 85 percent market share in the air braking and safety products and the content per vehicle is expected to increase from 20 percent from the current level.

"After a sluggish demand in the domestic commercial vehicle industry, we expect the demand to get stabilise by H1FY20. We believe, WIL will be a direct beneficiary owing to any structural change in the commercial vehicle industry (85 percent revenue constitutes from M&HCV sector). Government's change in emission norms to BS-VI by April 1 FY2020 and impending scrappage policy will lead to demand revival for M&HCV sector. The company has a consistent track record of outperforming industry growth. Its diversified portfolio and technological advantage differentiate WIL from its peers," the report said.

Additionally, the commercial vehicle company is working on Automated Connected & Electric (ACE) technologies in view of the electrification of the CV segment, the report said.

Highly accepted among the fleet operators, WIL's acquisition of Telematics LLC has further helped the company expand its portfolio of services.

As a full-time supplier, WIL will likely further benefit from the government's push towards the faster implementation of scrappage policy, which could spur the demand for CV.

WIL has reported an impressive export CAGR of 15 percent over FY14-19 accounting for 30 percent of revenue in FY19.

On the valuation front, Geojit Financial Services report said the stock has corrected from its 52-week high price of Rs 7,083 per share.

"We expect the demand to remain weak in the near term but long term growth outlook remains promising on the back of economic growth, rising income levels and government thrust on increasing rural income and its

focus on infrastructure and construction. Amid weak demand outlook and market volatility, WABCO has corrected 28 percent from its 52week high. However, given the strong fundamentals and expected structural change in the industry, we value WIL at 48x (5yr Historical average at 50x)FY22 EPS

and recommend Buy rating at CMP."

Wabco India has scheduled a meeting of the board of directors on January 28 to consider and approve the unaudited financial results of the Company for the quarter and period ended December 31, 2019.

First Published:Jan 21, 2020 3:29 PM IST