SCL transfers brakes biz to WABCO-TVS

Sundaram Clayton (SCL) transferred brakes business to WABCO-TVS (India). It has issued and allotted one share of Rs 5 each, fully paid up, for every one share of Rs 10 held in SCL. In the Financial Year 2008, the net sales of WABCO was at Rs 534.33 crore. Its profit before tax (PBT) was at Rs 104.36 crore and profit after tax (PAT) at Rs 69.84 crore. WABCO’s diluted EPS is at Rs 36.82.

The stock market angle:

Deven Choksey of KR Choksey Securities said that in the next two years the WABCO Group will hold about 80% of the holdings, taking over about 40% from the TVS Family. He added that Sundaram Clayton will, in turn, have 39% coming from Wabco and they will hold about 80% in the Sundaram Clayton.

Here is a verbatim transcript of the exclusive interview with Deven Choksey on CNBC-TV18. Also watch the accompanying video. 

Q: You think this would be the height of the stock price or there is more headroom to go?

A: This company is placed very interestingly. If one looks at the business model of this company, it is completely the brake division which is getting transferred to this new company, die-cast division and the TVS holding is staying with Sundaram Clayton. As per the arrangement, in next two years time the WABCO Group will hold about 80% of the holdings, taking over about 40% from the TVS Family. Sundaram Clayton will, in turn, have 39% coming from Wabco and they will hold about 80% in the Sundaram Clayton.

The numbers are slightly on the higher side as far as the PE ratio is concerned on this listing; however, most importantly, what I find is that because of the strong growth coming for the brake division, and particularly ABS (Anti-Lock braking System) becoming mandatory to the US market, this is going to bring a lot of business to this new company as Wabco is expected to have substantial amount of outsourcing done in this company in the coming two to three years time. So, from that angle the PE ratio is justified and when one compares this particular PE ratio with the companies such as Bosch, one will find that we are in the middle band out there in the PE ratio. However, when one compares it with typical domestic Indian companies, the PE ratio would be slightly on the higher side. I would say that the given growth visibility available for this company for two to three years of the ABS braking side, this valuation maybe slightly justified at this point of time.