Pick Of the Week – PPAP Automotive Ltd
We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.
• Industry leading EBITDA Margin: Conscious strategies to rationalize costs and improve local RM sourcing content, judiciously opening capacities closer to Auto clusters across North, South and West India. 9MFY18 it clocked EBITDA Margin of 21% versus 18% reported in 9MFY17. EBITDA Margins improved by 1160 bps over FY13 levels. We expect the margin profile to improve driven by 1) better product mix 2) improving overall equipment efficiencies 3) persistence towards cost optimization and local sourcing of RM.
• OEMs a “ Moat “; diversifying adds strength: A sealed bond with Japanese and Indian OEMs together forming ~85% of revenues of the company. Relationship spans over three decades with India’s largest PV manufacturer Maruti Suzuki forming about 45-48% revenues. Client additions across automobile manufacturers like PVs (Hyundai), LCVs, 2Ws a step to de-risk client concentration
• Sealing itself from EV disruption: Unaffected by EV disruption due to critical and indispensable nature of Sealing and Injection Molded Parts EV era augurs well for PPAP Automotive given its technological skills and capabilities in polymer extrusion and engineered plastics. The management has indicated that it has the capability to supply Sealing Systems and Injection molded parts to EVs for the international markets
• We maintain a BUY with a target of Rs. 642.