Wabco India is one of the few auto component companies which have posted positive returns over the last one year. While its core market of commercial vehicles (CV) has been the worst impacted in the auto segment, the stock price gains are largely because of the open offer.
After the global acquisition of Wabco by ZF Friedrichshafen AG of Germany (ZF), the acquirer is buying out minority shareholders at a revised open offer price of Rs 7,067.51 a share.
This is about 3 per cent higher than the current market price of the stock, and 15 per cent higher than the price on the date of acquisition.
Analysts at ICICI Securities say the relative resilience in the price-performance has centred around the market expectations of the open offer price, rather than the core operations, which are facing demand challenges.
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This is reflected in the muted March quarter performance.
Net sales of the company, which supplies braking solutions to commercial vehicle makers, fell 39 per cent compared to the year-ago quarter because of the sharp volume fall in the domestic CV market, as well as the export segments.
CV automakers account for 37 per cent of its revenues; other major segments include exports and replacement, which contribute 15 per cent each to revenues. Given the underutilisation of the current truck capacity because of weak market conditions, coupled with higher costs on account of a shift to BS-VI emission, demand for new trucks is unlikely to revive anytime soon.
What has impacted the sector further are relaxed axle-load norms and financing-related issues.
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However, analysts at B&K Research believe despite the Covid-19 impact, cost increases and pressures on domestic medium and heavy commercial vehicles, the stock is unlikely to correct sharply as it is supported by the open offer price.
Valuations at 81 times FY20 earnings, according to ICICI Securities, is disconnected from the prevailing challenges on the demand front.
They have a sell rating on the stock, given the elongated recovery cycle for commercial vehicles. Most brokerages advise investors to tender their shares in the open offer or in the secondary market.