Buy Commercial Eng; target of Rs 91: SPA Research

“CEBBCO is the largest organized player in outsourced body building fabrication for CVs in India. It also provides refurbishment of wagons, and designing and manufacturing of components for wagons and locomotives. It has set up a new wagon manufacturing factory to capture significant demand in the Indian railway sector. The company has also ventured into the power sector with manufacturing of structurals for boilers and electrostatic precipitators (ESPs) for clients such as BHEL and L&T.”

“CEBBCO is the largest player in outsourced body building fabrication for CVs in India with 40% share of Tata Motors' CV portfolio and also a preferred vendor by all major OEMs viz. Ashok Leyland, Volvo Eicher, MAN, AMW etc. We expect CEBBCO to be the major beneficiary of the increasing demand of Fully Built Vehicles (FBVs) in India with the gradual shift in focus towards building FBV by CV manufacturers. The share of FBVs has risen to 20% in the current fiscal vis-à-vis 12% in FY10. We expect the share of FBVs to rise substantiality over the next decade, as in developed economies all vehicles are sold in FBVs only.”

“CEBBCO is one of the key vendors for wagon refurbishment business of Indian Railways (IR). Through refurbishment, IR attempts to expand the quantity of rolling stock inventory in circulation. The cost advantages of refurbishment over new wagons are a key factor in this, as refurbishment costs per wagon are lower than the costs incurred for a new wagon. We expect CEBBCO’s refurbishment business to register a CAGR of 37% in revenues over the next 2 years and contribute 7-8% at EBITDA levels in FY13E. CEBBCO's order book stands at ~INR 7.54 bn, out of which CV business has contribution of ~INR 6.9 bn. In railways segment it has an order size of INR 385 mn for manufacturing of wagons and INR 150-200 mn for refurbishment business of Indian Railways. The current order book size of the power segment is ~INR 100-150 mn. The average execution period for the order book is ~1.50-1.75 years.”

“CEBBCO which derives majority of its revenues from body building business for CVs segment is expected to gain substantially from the increasing FBV penetration. We expect share of FBVs to rise to 25% in FY13E & 30% in FY14E vis-à-vis c.20% in FY12E. We expect domestic volumes of CVs sector to register a CAGR of 16% over FY11-13E, resulting in sustained growth for CEBBCO. We expect CEBBCO’s topline & bottomline to register a CAGR of 80% & 231% respectively over FY11-FY13E on the back of increased focus on FBVs by OEMs coupled with lack of organized players in this space and foray into wagons manufacturing & power sector. We expect EBITDA margins of 16.28% in FY13E vis-à-vis 6.11% in FY11. We recommend a "BUY" with a target Price of INR 91 in 15 months, at 6x FY13E EV/EBITDA,” says SPA Research report.   

Public holding more than 90% in Indian cos

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