Religare puts buy on Emco; target Rs 240
Religare Research has maintained ‘buy’ on Emco and has downgraded their target price to Rs 240 from Rs 326 previously.
By ET Online |
MUMBAI: Religare Research has maintained ���buy��� on Emco and has downgraded their target price to Rs 240 from Rs 326 previously. The company has posted a healthy net sales growth of 36 per cent year on year to Rs 340 crore for Jan-Mar 2007-08 and 44 per cent to Rs 940 crore for the full fiscal.
Project division revenues have picked up pace during Oct-Mar 2007-08, contributing 30 per cent of net sales for the fiscal. The management expects an even higher revenue share from this division in 2008-09, at 45 per cent.
Emco's order book stands at Rs 1,100 crore, which is 1.2x FY08 sales. The healthy order backlog and bright outlook for the project division indicate good revenue flows over the next two years, says Religare.
A reduction in employee cost and other expenditure saw EBITDA margins moving up by 155 basis points during Jan-Mar 2007-08 to 14.2 per cent and by 50 basis points for 2007-08 to 13.7 per cent. Religare expects margins to dip slightly to 13.4 per cent in 2008-09 given the higher share of project division revenues, which earn lower margins than transformers. Net profit came in ahead of estimates, with a growth of 98 per cent year on year for the quarter and 59 per cent for the year.
Religare has revised their margin estimates as well as depreciation and interest cost figures for 2009-10, which shaves 5.8 per cent off their 2009-10 profit after tax. The DCF model returns a fair value of Rs 240 for the stock, assuming a WACC of 13.1 per cent, cost of equity of 17.1 per cent, beta of 1.3 and debt-equity ratio of 0.5x.
At present, Emco is trading at 10x one-year forward P/E, which is a 61 per cent discount to peer company, ABB.
Project division revenues have picked up pace during Oct-Mar 2007-08, contributing 30 per cent of net sales for the fiscal. The management expects an even higher revenue share from this division in 2008-09, at 45 per cent.
Emco's order book stands at Rs 1,100 crore, which is 1.2x FY08 sales. The healthy order backlog and bright outlook for the project division indicate good revenue flows over the next two years, says Religare.
A reduction in employee cost and other expenditure saw EBITDA margins moving up by 155 basis points during Jan-Mar 2007-08 to 14.2 per cent and by 50 basis points for 2007-08 to 13.7 per cent. Religare expects margins to dip slightly to 13.4 per cent in 2008-09 given the higher share of project division revenues, which earn lower margins than transformers. Net profit came in ahead of estimates, with a growth of 98 per cent year on year for the quarter and 59 per cent for the year.
Religare has revised their margin estimates as well as depreciation and interest cost figures for 2009-10, which shaves 5.8 per cent off their 2009-10 profit after tax. The DCF model returns a fair value of Rs 240 for the stock, assuming a WACC of 13.1 per cent, cost of equity of 17.1 per cent, beta of 1.3 and debt-equity ratio of 0.5x.
At present, Emco is trading at 10x one-year forward P/E, which is a 61 per cent discount to peer company, ABB.
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