Analysts' Picks: Sona Koyo Steering

Sona Koyo Steering
CMP: Rs 15.20
Target price: NA

Angel Broking has maintained its ���neutral��� rating on Sona Koyo citing ���fair��� valuations based on its 2010-11 earnings estimates. ���On improving volumes and on an improving operating leverage, we expect Sona Koyo to clock an EPS (earnings per share) of Rs 0.7 in FY2010E (estimated) and Rs 1.5 in FY2011E,��� the retail brokerage said in a report to clients. ���In our base-case scenario, the stock is trading at 10.8x (times) its FY2011E Earnings, which we believe is fair,��� it said.

Though the company managed to turn around in the first quarter of 2009-10, Angel expects Sona Koyo���s profits to be under pressure over the next couple of years. ���The aggressive capex incurred in the past few years and a high debt in book (of around Rs 240 crore) would continue to pressurise the bottomline (profit), at least for the next couple of years,��� the brokerage said. ���Additionally, the major investments done in joint ventures will start contributing to the bottomline only after FY2011 (2010-11),��� it added.