Reduce ZF Commercial Vehicle Control Systems; target of Rs 14,003: ICICI Securities

ICICI Securities research report on ZF Commercial Vehicle Control Systems

ZFCVCS (ZFI)’s operational performance with EBITDA at INR1.3bn (-8% QoQ) was below our estimate of INR 1.6bn. Revenues were up 3% YoY at INR 8.9bn with OEM/export/aftermarket segments’ revenues at INR 4.8bn/INR 2.0bn/INR 1.1bn, and growth of ~19%/(29%)%/10% YoY. EBITDAM was at 14.9% (+20bps QoQ), driven by gross margin improvement of +40bps, partially offset by higher employee expenses. We are building in ~13% revenue CAGR for FY24-26E with mean EBITDAM of ~16%.

Outlook

We have cut our revenue and margin estimates due to subdued CV retails in recent months, and lower Q3 revenue, leading to 9%/16% cut in FY24E/FY25E EPS. Downgrade to REDUCE (from Hold) with a DCF-based TP of INR 14,003 (earlier INR 14,903), implying 43x FY26E EPS.