ASK Automotive Ltd - No brakes on growth - Initiating Coverage Report

We initiate coverage on ASK Automotive Ltd with a BUY and a Target Price of Rs 550. ASK ’s promising outlook is underpinned by its ability to

(i) outpace industry growth,

(ii) expand wallet share with OEMs,

(iii) increase its export footprint and

(iv) huge growth potential of the ALPS business, aided by foray into differentiated alloy wheels business.

With its market leadership position in the ABS segment offering stability, ASK has shown strong technical expertise by achieving a 35% CAGR in fast-growing ALPS business over FY21-25. The company is strategically well-placed to benefit from the electrification wave, supported by higher content per EV compared to ICE vehicles and marquee EV clientele. ASK has the potential to get rerated as scale expands, margins improve meaningfully, exports pick up, high return ratios and best in class cash conversion cycle sustains along with impressive CFO/EBITDA conversion.

Sticky and stable braking business:

ASK holds a leading 50% market share in India’s 2W brake-shoe and advanced braking segment (ABS), covering both OEM and branded IAM segments. It has established enduring relationships with the top 2W OEMs, spanning over two decades, underscoring its strong customer stickiness and strategic relevance in the value chain as a critical safety component. With nearly 75% of the 2W industry still dependent on drum brake systems, we believe the significant cost differential between drum and disc brakes will continue to favor drum brake adoption, an area where ASK maintains clear leadership. This well-established and mature business line is slated to witness 8-9% CAGR - in line with the underlying 2W industry.

Riding the lightweighting wave:

ASK has strategically capitalized on the industry-wide lightweighting trend, leveraging its in-house design capabilities and tooling expertise. It has benefited from multi-vendor sourcing strategies adopted by major Indian OEMs, enabling it to expand wallet share within key accounts. ASK ’s timely diversification into EV-specific parts and higher content per vehicle mitigates the risk from EV transition faced by certain engine components. Further, ASK ’s entry into alloy wheels backed by HPDC technology offers a potential first-mover advantage. This initiative is supported by strategic collaborations which we expect to unlock a new growth area.

Robust earnings growth, solid financials:

We build in revenue/ EBITDA/ PAT growth of 15%/ 20%/ 22% over FY25-28E on the back of (i) wallet share gains with non-Honda OEMs, (ii) improvement in exports, (iii) contribution from new alloy wheels business and (iv) gradual increase in industry EV penetration. ASK should achieve a 170bps margin expansion by FY28E, driven by the ramp-down of its wheel assembly business and higher capacity utilization at new plants. With a presence in ~80% of the organized 2W EV market comprising clients such as TVS, Ola, and Ather, ASK can effectively capitalize on rising EV penetration and new model launches. Financials are robust and are expected to further improve with growth consistently outpacing the industry, margins > 13.5%, return ratios > 20%, CFO/EBITDA conversion > 70%, and one of the industry’s best cash conversion cycles at just 14 days by FY28E. 

Valuation, view and risks: 

ASKs positioning in the ABS segment and steadfast growth in ALPS segment has attributed to a superior 24% CAGR in revenue over FY21-25, also outpacing 2W industry growth at 7-8%. Favorable sectoral tailwinds in the two-wheeler industry coupled with increasing emphasis around light weighting of vehicles and EVs bodes well for ASK . We have valued at 27x 1QFY28E earnings (in-line with its 1-yr forward avg. PE since listing) to arrive at a TP of Rs550. Operational catalysts (pick up in margins, commencement of alloy-wheel business and gradual client diversification) could well see valuation multiple expand further. Key Risks: High client concentration, failure to ramp up exports and delay in contribution from the alloy wheels business.

Rating: BUY

CMP: INR 471 | Target Price:  INR 550

Upside: 17 %  

Click to download the full Ask Automotive IC Report

Analyst: Smit Shah (NISM – 202300068297)

Company website: https://askbrake.com/

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