Sharekhan
Sharekhan research is bullish on International Combustion and has maintianed buy rating on the stock with target price of Rs 519.
Sharekhan Stock Broking Firm research report on International Combustion
The revenues of International Combustion India Ltd (ICIL) grew by 27.2% year on year (yoy) to Rs20.2 crore in Q1FY2008. The revenue growth was in line with our estimates. w The revenues of the Heavy Engineering Division (HED) of the company grew by 18.9% yoy to Rs16.5 crore. The Geared Motor and Geared Box Division’s (GMGBD) revenues rose by an impressive 78.9% yoy to Rs3.8 crore.
The operating profit margin (OPM) expanded by 560 basis point yoy to 24%. The OPM rise was due to a reduced raw material cost to sales ratio, which declined by 380 basis points to 46.8% in Q1FY2008. The staff cost to sales ratio and the other expenses to sales ratio both saw a decline of 90 basis points yoy.
The HED reported a profit before interest and tax (PBIT) margin of 38.4%, which was up 670 basis points yoy. The GMGBD, which incurred a loss in the corresponding quarter last year reported a PBIT margin of 1.3% for this quarter.
The net profit jumped by a whopping 104.4% yoy to Rs2.8 crore led by a higher other income and robust expansion of margins. The profit after tax (PAT) margin for the quarter was 13.9%.
The outstanding order book of the company at the end of July 2007 was Rs64 crore. The HED has an order backlog of Rs52 crore while the GMGBD has pending orders worth Rs12 crore.
The company plans a capital expenditure (capex) of Rs8 crore in FY2008 towards capacity addition in the HED and the GMGBD to meet the rising demand for its products. Valuations and view Indian steel majors like Steel Authority of India Limited (SAIL) and Tata Steel are ramping up their capacities to meet the rising demand for steel at home. It is estimated that 50 million tonne of steel making capacity will be added by the Indian steel industry over the next three years.
Similarly, the sugar industry in India is on a high with huge capex plans. Majority of the companies in the sector have announced their capex plans to be implemented over the next few years. Just like steel and sugar, ICIL’s other enduser industries like cement, chemicals, non- ferrous metals and mineral and mining sectors are at an influx point of capacity addition. This translates into a huge opportunity for company’s products like sizers, screeners and feeders.
ICIL with its market leadership position and quality product offerings is well placed to capitalise the opportunity. Considering the strong order backlog and the expansion plans of its key user industries such as steel, sugar and cement, we expect the revenues and profits for ICIL to grow at a CAGR of 21.5% and 29% respectively over FY2007- 2009E. Our FY2009E earnings stand at Rs58 per share.
Valuation
We remain positive on the stock and reiterate our Buy recommendation with the price target of Rs519. At the current market price of Rs391, the stock is trading at 8.3x FY2008E earnings and 6.7x FY2009E earnings. In terms of EV/EBIDTA the stock is quoting at 4.4x FY2008E and 3.5x FY2009E.
Moneycontrol.com
