For 2QFY2016, Competent Auto (Competent) reported a decent set of numbers.
The top-line for the quarter grew by 12.2% yoy to Rs220cr, which is slightly lower
than our estimate of Rs226cr. The revenue growth is in-line with growth reported
by Maruti Suzuki in 2QFY2016, where its top-line grew by 13.1% yoy largely
owing to 10% volume growth. The EBIDTA for the quarter came in at Rs6cr as
against Rs5cr in the corresponding quarter a year ago. The EBIDTA margin for the
quarter improved by 9bp yoy to 2.7% as against 2.6% in 2QFY2015. The interest
expense for the quarter grew by 40% yoy to Rs1.6cr as against Rs1.2cr in 2QFY2015.
Consequently, the net profit came in at Rs2.6cr, growing by 21.6% on a yoy basis.
Proxy play on Maruti’s growth: The top-line performance of the company is
closely linked to the performance of Maruti Suzuki (MSIL). We expect MSIL to post
robust volume growth in the domestic market going ahead on back of new
launches which will be replicated by Competent. Also, we expect the market share
of the company to remain stable/improve, as entry of a new dealer seems to be
commercially unviable with property prices having soared significantly in the Delhi
region. Further, higher vehicle sales would likely get converted into greater demand
for after sale services, thus bringing in additional revenue for the company.
Scalable business model with healthy balance-sheet: The company has a scalable
business model which will enable it to report sustainable revenue growth going
ahead. The company has increased its short term debt in 1HFY2016E ahead of
the festive season mainly utilizing the funds for inventory. We expect the debt level
to return to normal levels by the year end.
Outlook and Valuations: We believe that Competent will continue to benefit from
its established position in the automobile dealership market in Delhi, Haryana,
and Himachal Pradesh, and from its conducive relationship with its principal,
MSIL. During FY2015-17, we expect the company to register a top-line and
bottom-line CAGR of 10.9% and 21.7%, to Rs1,137cr and Rs17cr, respectively.
Currently, the stock trades at 5.1x its FY2107E earnings. We have a Neutral
rating on the stock.

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