Industry 40 And New Sales Model Will Unlock Future Value

Key Takeaways

• Expansion into higher-value product segments and growing wallet share per vehicle are driving top-line improvement and future growth opportunities.
  
• Strategic investments in automation, electrification, and efficiency are enhancing operating leverage, market relevance, and supporting sustainable margin expansion.
  
• Reliance on niche segments, export limitations, OEM pricing pressure, and related-party dependencies could constrain growth, profitability, and value capture for Automotive Axles.

Catalysts

Manufactures and sells automotive components in India.

• The shift to a new sales model, where Automotive Axles now directly recognizes sales previously routed through Meritor HVS, is expected to yield incremental improvements in both revenue and EBITDA margins over the next few quarters, especially as export sales are normalized and less subject to the new service fee, directly benefiting earnings and profitability.
  
• Strategic investments in automation, manufacturing efficiency, and Industry 4.0 adoption are reducing per-unit costs and improving productivity, which should enhance operating leverage and support sustainable margin expansion as volumes recover in coming years.
  
• Ongoing expansion into higher-value product segments-such as heavy-duty axles and new bus axle platforms, with recent launches and customer trials underway-positions the company to grow wallet share per vehicle, increasing average revenue per content and supporting top-line growth.
  
• Long-term infrastructure investments and logistics demand in India, together with government spend, are stabilizing commercial vehicle and off-highway markets; this is expected to maintain stable or slightly growing addressable volumes, countering cyclical downturn risks and supporting medium
• to long-term revenue visibility.
  
• Tightened focus on serving electric and hybrid vehicle segments, plus continued technical collaboration with global partners, is enabling Automotive Axles to access new product revenue streams and preferred-vendor status as regulatory push towards vehicle safety, fuel efficiency, and electrification accelerates-supporting both future revenue and potential for improved net margins.

Automotive Axles Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Automotive Axles's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.6% today to 7.3% in 3 years time.
• Analysts expect earnings to reach ₹1.7 billion (and earnings per share of ₹115.25) by about August 2028, up from ₹1.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.4x on those 2028 earnings, up from 15.9x today. This future PE is lower than the current PE for the IN Auto Components industry at 29.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.21%, as per the Simply Wall St company report.

Automotive Axles Future Earnings Per Share Growth

Risks

• Management consistently described the revenue and margin benefits of the new business model as "marginal" rather than material, despite repeated shareholder queries, suggesting the new arrangement may not significantly boost long-term revenue, EBITDA, or earnings growth.
  
• Automotive Axles' export revenue growth is currently restricted by group-based sales channels and lack of direct export customer additions, which may hinder long-term export diversification and limit revenue resilience if domestic demand weakens.
  
• The company faces ongoing pricing pressure from OEMs and competition (e.g., American Axle/Bharat Forge and other established players), which could limit Automotive Axles' ability to sustain or expand net margins and adversely impact profitability.
  
• Customer concentration persists, particularly with a few major OEMs, and company statements indicate new product launches in segments like buses are niche and low volume over the near
• to medium-term, posing continued revenue and earnings volatility risk.
  
• Management's lack of direct visibility into the underlying number and proprietary value addition by related-party entities (Meritor/Cummins), alongside persistent related-party service fees, suggest continued dependence and possibly limited capacity to capture all value creation in-house, which could cap margin expansion and earnings potential.

Valuation

• The analysts have a consensus price target of ₹2059.0 for Automotive Axles based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹23.8 billion, earnings will come to ₹1.7 billion, and it would be trading on a PE ratio of 26.4x, assuming you use a discount rate of 14.2%.
  
• Given the current share price of ₹1651.65, the analyst price target of ₹2059.0 is 19.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.