Ask Automotive (Initiating Coverage): Long-Term Potential To Beat Near-Term Volatility. Add

The company’s long-term business potential remains intact on the back of increasing content via 2W premiumization and electrification (~30-40% more content than ICE), which is also being led by successful entry into newer segments. We expect margin expansion (barring FY27) to be supported by increase in exports mix and exit of the low-margin wheel assembly business. However, we remain cautious on near-term headwinds arising from higher raw material costs and geopolitical tensions, which could slow down the growth of customers. We initiate coverage on ASK Automotive with an ADD rating, valuing it at 22x Mar’28 EPS (near -2SD of mean), for a TP of INR480.

Braking revenue to be led by industry tailwinds: Continuing premiumization and electrification of vehicles and improving road infrastructure is leading to higher importance and complexity of braking solutions. Given the criticality of the product, the braking industry has high entry barriers. Beyond the near-term volatility, we expect good potential for 2W replacement demand over the medium term, considering the domestic 2W sales are yet to cross the FY19 peak. Additionally, there is increasing focus on exports by 2W OEMs, expanding their geographical presence and portfolio.

Multiple growth avenues: Growth is being led by increasing content per vehicle via increasing premiumization and EV penetration (30-40% more content vs ICE), light-weighting trend that will aid the ALP segment, higher aluminium prices (over at least the near term), though partially negated by exit of the wheel assembly business (in the near term). The company is also seeking to expand growth avenues via the technical collaboration for HPDC alloy wheels, the AISIN JV for aftermarket and TD Holding JV for sunroof control cables for PVs, and focus on driving exports and the non-2W mix.

Margin expansion to continue in FY28: We expect the reduction of the low-margin wheel assembly business to only partially negate the higher raw material cost-led margin contraction in FY27. Beyond that, in FY28, we expect margin expansion to be supported by improving economies of scale, complete exit from the wheel assembly business, increase in exports, and cost savings from solar power usage.

Near-term headwinds on the rise: While the long-term potential of the company’s business remains intact, there are certain headwinds developing in the near term. Risks are emanating from rising commodity prices, especially aluminium, which could lead to price hikes, implementation of the ABS norm, which could again lead to price hikes in the below 125cc segment (and also reduce brake shoe demand), increasing geopolitical tensions, which could soften demand for 2W exports as well as delayed and costlier shipments for the same.

Financial summary

Source: Company, HSIE Research