Buy ISGEC Heavy Engineering, target Rs 7,093: ICICI Securities

ICICI Securities has a buy call on ISGEC Heavy Engineering with a target price of Rs 7,093.

The current market price of ISGEC Heavy Engineering is Rs 5,279.35.

Time period given by the brokerage is one year when ISGEC Heavy Engineering price can reach the defined target.


Investment rationale by the brokerage:
Strong order intake from new sectors: Company witnessed strong order intake in Q2FY19 boosted by its second FGD order of Rs 500 crore from NTPC Gadarwara. Order prospects from process industries and material handling segments are healthy, led by brownfield expansions.

Increased market penetration in domestic boiler market: Leveraging its various global technology partnerships, ISGEC has been able to successfully penetrate certain key technological boiler segments, e.g. CFBC. The company has been able to win the confidence of quality-conscious customers willing to pay for higher efficiency and quality. Though the sugar industry is under stress, the recent policy support from the government toward distillery unit interest subvention and focus toward improvement of yield, will lead to capex from the sugar sector.

Foray into the promising market of emission control in power plants: ISGEC has tied up with Babcock Power to offer FGD to control SOx and with Fuel Tech to offer solutions for NOx control. Near-term opportunity is from NTPC bulk tenders for FGD while the overall opportunity in FGD is pegged at Rs340bn. ISGEC has already won two FGD projects amounting to Rs12bn from NTPC.

Maintain BUY: Given the strong order book, which will support execution and overall bottoming-out of margins, we believe the current valuations are benign. Maintain BUY with an SoTP-based target price of Rs 7,093.