Hold ZF Commercial Vehicle Control Systems; target of Rs 12,810: ICICI Securities

ICICI Securities research report on ZF Commercial Vehicle Control Systems

ZFCVCS (ZFI) has delivered a 10-quarter high gross margin, driven by improving mix and lagged price hikes, resulting in flat EBITDAM QoQ. ZFI’s revenue from domestic OEMs was up ~20% YoY, driven by new business generation from electronic stability control system sales to buses, electronic braking system applications, electronic compressors and driver assistance systems. Going ahead, ZFI is planning to ramp-up EBITDAM, led by improving mix of new complex products at the cost of lower margin commoditised products, improving productivity and tighter control on pricing. We are building in ~24% revenue CAGR for FY23-25E with mean EBITDAM of ~15.5%.

Outlook

We downgrade ZFI to HOLD from Add post 40% return in the past 6 months with a revised DCF-based target price of INR 12,810 (earlier INR 11,433), implying 40x FY25E earnings.