Key estimate revision. Financial summary. Year

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1 : price: EPS: How does our one year outlook change? We retain our positive outlook on WIL and believe that revival in MHCV industry, increasing content per vehicle and opportunity in exports would drive top line and margin improvement. We expect the wide gap in content per vehicle in India and the developed countries to narrow over a long term. Retain Add rating with a target price of. Expect WIL to outperform domestic MHCV industry growth on the back of shift to higher tonnage and increase in content per vehicle. Key drivers for increase in content - 1) ABS (mandatory from 1 st October 15) 2) Air Disc Brake (introducing foundation braking systems in India) 3) Automatic Manual Transmission (AMT) 4) Shift from lower capacity (160cc) to higher capacity (320cc) compressors due to more pneumatic applications During FY10-14, Wabco Holding s sourcing from best cost countries improved from ~40% to ~44% which resulted in exports improving from Rs.0.5bn to Rs.4bn per annum for Wabco India. Therefore given that the parent has now guided for sourcing from best countries to increase to 58% by FY18, expect exports to increase to at least to Rs.7.5bn by FY17 EBITDA margin in 1QFY16 improved significantly to 18.1% as EUR depreciation impacted the last three quarters (FX loss of Rs.85mn in 4QFY15). With the expected improvement in utilizations, better segment mix and stable to weak raw material / pass through to OEMs, expect margin to come in higher than ~18% in FY17 We also expect increase in localization of ABS and the AMT (currently major components imported) as volume growth picks up How does our 3 year Outlook change? We expect Knorr-Bremse to significantly scale up their presence in the conventional braking systems (air braking) and the ABS systems. We expect WIL s market share to decline from the current ~90% to about ~85% in FY18 for air braking and further to ~75% through FY25 However, despite the declining market share, we expect the MHCV industry to record significant improvement in volumes and opportunity to increase content per vehicle leaves ample room for both players to see steep volume growth. Given increasing share of exports and a near monopoly, we expect WIL s EBITDA margins to stabilise at ~18% in FY18 Financial summary Year 1QFY16 Update Promoters 75.0 Institutions 10.8 Public 14.2 Key estimate revision Revenues (Rs. mn) 1m 3m 12m WIL 13% 8% 81% Sensex 0% 4% 9% BSE Auto 1% 4% 23% EBITDA (Rs. mn) FY16E Adj.PAT (Rs. mn) Adj EPS (Rs.) FY17E Old New Change Old New Change Revenue 18,210 18, % 25,352 26, % EBITDA 3,183 3, % 4,596 4, % Margin (%) 17.50% 17.5% 2 bps 18.10% 18.2% 10 bps PAT 2,123 2, % 3,155 3, % PAT Margin 11.70% 11.7% 0 bps 12.40% 12.5% 6 bps EPS % % All figures in Rs. mn, except EPS, which is in Rs. Bloomberg Shares o/s Market Cap 03 Aug 2015 WIL IN 19mn Rs. 115bn 52-wk High-Low Rs. 6,344-3,202 3m Avg. Daily Vol Index Rs. 56mn BSEMCAP P/E(x) EV/EBITDA (x) FY15 13,480 2,034 1, FY16E 18,664 3,270 2, FY17E 26,223 4,773 3, FY18E 32,344 5,917 4, MUKESH SARAF mukesh@sparkcapital.in ROHIT KRISHNA rohitkrishna@sparkcapital.in Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Page 1

2 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY E Wabco India (WIL) Quarterly financial results Standalone financial results Sourcing from best cost countries to increase sharply by 2017 Rs. mn\period Mar-15 Mar-14 yoy % Dec-14 qoq Growth Revenue 3,850 3, % 3, % Raw Material 2,233 1, % 2, % Employee cost % % Other cost % % 100% 80% 60% 40% 20% 10% 90% 30% 70% 38% 43% 41% 44% 60% 57% 59% 56% 58% 42% Total Expenditure 3,154 2, % 3, % 0% EBITDA % % Margin % 18.1% 15.1% 302 bps 14.7% 337 bps D&A % % EBIT % % Proportion of Wabco Holdings Inc's sourcing from high cost countries Proportion of Wabco Holdings Inc's sourcing from best cost countries Source: Spark Capital Research Wabco has outperformed MHCV industry growth Other income % % 80% Net Interest exp (inc) % 1.7 NA PBT % % 60% 40% 20% Tax provision % % 0% Tax rate % 27.3% 28.3% -102 bps 39.2% bps PAT (Reported) % % -20% -40% Shares Outstanding EPS (Reported) % % Wabco OEM growth Source: SIAM, Spark Capital Research MHCV growth Page 2

3 DCF-based valuation FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY30 FY31 FY32 FY33 FY34 FY35 Revenue 11,107 13,480 18,664 26,223 32,344 38,892 45,030 1,58,186 1,75,729 1,93,780 2,13,633 2,38,808 2,66,141 yoy growth % 21% 38% 41% 23% 20% 16% 12% 11% 10% 10% 12% 11% EBITDA 1,821 2,034 3,270 4,773 5,917 7,021 8,144 28,586 31,797 35,111 38,784 43,414 48,399 Dep ,289 3,663 4,059 4,455 4,895 5,379 EBIT 1,500 1,567 2,734 4,185 5,259 6,240 7,209 25,296 28,134 31,052 34,328 38,519 43,020 Tax ,130 1,420 1,685 2,019 8,348 9,284 10,247 11,328 12,711 14,197 EBI 1,064 1,144 1,996 3,055 3,839 4,555 5,191 16,949 18,850 20,805 23,000 25,808 28,823 WC Changes 48 (276) (890) (1,281) (1,039) (778) (901) (1,898) (1,933) (2,132) (2,350) (2,627) (2,928) Capex (617) (727) (900) (800) (800) (2,000) (1,500) (4,000) 4,500) (4,500) (4,500) (5,500) (5,500) FCFF ,562 2,658 2,559 3,725 14,340 16,080 18,232 20,605 22,576 25,775 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY30 FY31 FY32 FY33 FY34 FY35 OEM Revenue 4,307 6,056 8,457 11,135 14,285 17,325 20,086 69,357 75,569 82,255 89,441 1,00,496 1,12,917 % of net sales 41.2% 47.6% 51.8% 51.2% 52.4% 52.3% 51.7% 50.7% 50.0% 49.3% 48.5% 48.6% 48.7% MHCV Volumes 2,21,626 2,68,553 3,35,691 4,02,830 4,75,339 5,46,640 6,01,304 14,22,905 15,08,280 15,98,776 16,94,703 17,96,385 19,04,168 Wabco's Market share 88.0% 88.0% 87.0% 86.0% 85.0% 83.0% 81.0% 66.0% 64.0% 62.0% 60.0% 60.0% 60.0% Avg realisation for Wabco 22,084 25,626 28,957 32,142 35,356 38,185 41,240 73,854 78,285 82,982 87,961 93,239 98,833 USD Realisation/CV ,154 1,223 1,297 1,374 1,457 1,544 NPV Calculation Discounted FCFF 55,099 PV of Terminal Value 63,327 EV 1,18,426 Less: Net Debt/(net Cash) -5,028 Implied Market Cap 1,23,454 Outstanding Shares 19.0 Price 6,509 Terminal Growth 4.5% WACC 11.0% Terminal Value 4,14,383 Expect content per vehicle to improve from ~$400 currently to ~$1,500 by FY2035. We note that Wabco Holdings (parent) current realization stands at ~$3,000/vehicle in W.Europe, $1,500 in S. America and $1,000 in N.America. In the next five years, the key drivers would be 1) ABS 2) Air Disc Brake 3) AMT 4) Large capacity Compressors We expect mandatory regulations to drive majority of safety related content per vehicle. India has lagged developed markets by ~20 years in ABS implementation. We believe that this gap will narrow for future addition of new products. We expect WIL to lose market share in the OEM segment from ~88% currently to about 60% by FY35 as we believe Knorr-Bremse will significantly scale-up supplies to new platforms of all OEMs Page 3

4 Financial Summary Abridged Financial Statements Key metrics Rs. mn FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E Profit & Loss Growth ratios Income from operations 12,715 17,759 25,168 31,059 Revenues 21% 38% 41% 23% Other operating income ,055 1,285 EBITDA 12% 61% 46% 24% Total Income 13,480 18,664 26,223 32,344 PAT 3% 80% 50% 27% Total operating expenses 11,446 15,393 21,450 26,428 Margins EBITDA 2,034 3,270 4,773 5,917 EBITDA 15.1% 17.5% 18.2% 18.3% EBIT 1,567 2,734 4,185 5,259 EBIT 11.6% 14.6% 16.0% 16.3% Profit before tax 1,770 3,005 4,514 5,719 PAT 9.0% 11.7% 12.5% 12.8% Tax ,247 1,576 Leverage & WC ratios Profit after tax 1,210 2,183 3,267 4,143 Debt to equity Balance Sheet Current ratio Networth 8,630 10,630 13,645 17,467 Working capital days Loan funds Performance & turnover ratios Sources of funds 8,795 10,795 13,810 17,631 RoACE 13% 20% 25% 24% Net Block 3,237 3,601 3,814 3,955 RoAE 15% 23% 27% 27% Capital WIP Total asset turnover Investments Fixed asset turnover Current assets, loans & advances 7,329 9,272 13,048 17,439 Valuation metrics Current liabilities & provisions 2,340 2,646 3,620 4,331 Current price (Rs.) 6,025 Net Current Assets 4,989 6,626 9,428 13,108 Shares outstanding (mn) Application of funds 8,795 10,795 13,810 17,631 Market Capitalisation (Rs.mn) 1,14,280 1,14,280 1,14,280 1,14,280 Cash Flows (Rs. mn) Enterprise value (Rs.mn) 1,12,050 1,11,234 1,09,644 1,06,935 Cash flows from operations 1,242 1,829 2,573 3,762 EV/EBITDA (x) Capex Per-share earnings (Rs.) Cash flows from investments P/E (x) Free Cash Flow ,773 2,962 Price to Sales Cash flows from financing EV/Sales (x) Cash generated during the year ,590 2,709 Dividend yield 0.1% 0.1% 0.2% 0.2% Page 4

5 Recommendation History 7000 WABCO-TVS Aug-12 Jan-13 Jun-13 v-13 Apr-14 Sep-14 Feb-15 Jul-15 Historical Report Date (Rs.) TP (Rs.) Recommendation 25/May/15 5,625 5,915 Add 19/Mar/15 5,500 5,900 Add 27/Jan/15 5,000 5,223 Add 22/Oct/14 3,655 3,780 Add 23/Jul/14 3,550 3,780 Add 03/Jul/14 3,450 3,780 Add 10/Jun/14 2,656 2,700 Add 30/Jan/14 1,850 2,000 Add 29/Oct/13 1,710 1,800 Add 26/Jul/13 1,770 1,850 Buy 09/Jul/13 1,620 1,740 Add 17/May/13 1,390 1,594 Buy Report Date (Rs.) TP (Rs.) Recommendation 21/Jan/13 1,576 1,551 Reduce 25/Oct/12 1,627 1,505 Reduce 25/Jul/12 1,456 1,337 Reduce 04/Jul/12 1,491 1,492 Reduce Page 5

6 Disclaimer Absolute Interpretation BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide positive returns of >5% <15% over a 1-year horizon SELL Stock expected to provide returns of <5% -10% over a 1-year horizon Stock expected to fall >10% over a 1-year horizon Spark Disclaimer Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time. 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7 Cont d Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report: Disclosure of interest statement Analyst financial interest in the company Group/directors ownership of the subject company covered Investment banking relationship with the company covered Spark Capital s ownership/any other financial interest in the company covered Associates of Spark Capital s ownership more than 1% in the company covered Any other material conflict of interest at the time of publishing the research report Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months: Managing/co-managing public offering of securities Investment banking/merchant banking/brokerage services products or services other than those above in connection with research report Whether Research Analyst has served as an officer, director or employee of the subject company covered Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; WIL Yes Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst s personal views about any and all of the subject securities or issuers; and no part of the research analyst s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report. Additional Disclaimer for US Institutional Investors This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material concerning investment to you under relevant legislation and regulations; Page 7