Buy Savita Chemical, tgt Rs 274: Angel Broking

Angel Broking has maintained buy rating on Savita Chemicals with target price of Rs 274 in its July 08, 2008 report. "Savita Chemicals has reported an above average performance for FY2008. Although Revenues increased by a mere 12.9% yoy to Rs919 crore (Rs 814 crore), PAT surged 30.5% yoy to Rs 62.0 crore (Rs 47.5). The good performance was mainly on account of the rise in the product prices, almost stable base oil prices and favourable exchange rate. However, we believe the high OPMs of 9.8% reported by the company are not sustainable and are likely to decline in the near future. This is because the high crude oil prices may push up the base oil prices, which would adversely impact the company’s OPMs. We believe that the company will be able to report over 17% CAGR in Top-line over FY2008-10 driven by strong demand for transformer oils. Operating Margins are expected to hover at around 8.5% over the next couple of years. Bottom-line growth over FY2008-10 will be restricted to a CAGR of 8.4% due to the above average performance during FY2008. Based on the recent market turmoil and de-rating of the broader indices, we are lowering our Target multiple for the stock to 5.5x. At Rs 231, the stock is available at 4.6x FY2010E EPS of Rs 49.8. Based on our revised numbers, and reduced Target multiple on account of the overall valuation correction witnessed in the market, we maintain a Buy on the stock, with a revised Target Price of Rs 274 (Rs340)" according to Angel Broking report.