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Prabhudas Lilladher Report
We cut our FY25E/26E earning per share by 20%/12%, to factor in the headwinds in the legacy Transfer Case business. Divgi TorqTransfer Systems Ltd. Q1 FY25 performance was a miss on our expectations as its revenue declined by 4.1% YoY, coming in lower than our estimates by 16%. The decline in revenue was due to weakness in its core Transfer Case business.
The weakness was partially mitigated by its enterprise value and components business, which reported healthy growth on a low base. The management expects core business recovery from H2 FY25 and has retained the FY25 revenue growth guidance at 8-10%. Additionally, it expects exports to contribute 20%+ to its revenue by FY26.
We expect Divgi to benefit from the
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revival of exports business in China and Thailand markets for the Components business,
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expansion of product portfolio across business divisions, which shall translate into revenue growth, and
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supply of higher range EV products, resulting in better capacity utilization at its Shirwal plant.
Consequently, we estimate its revenue/Ebitda/profit after tax compound annual growth rate of 15%/17%/25% over FY24-26E.
We retain our ‘Accumulate’ rating with a target price of Rs 734 (previous Rs 831) valuing it at a price to earning of 35 times on its FY26E earning per share.
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