Accumulate Rico Auto, target of Rs 31: Angel Broking

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Angel Broking has come out with a research report on Rico Auto . The research firm has maintained an accumulate rating on the stock, with a target price of Rs 31.

"We maintain that FY2010E will be a year of recovery for most domestic Auto Component manufacturers. In case of Rico, its investments in joint ventures (JVs) and exposure to export markets like the USA and the UK, which experienced recessionary trend, have been impacting its performance. However, we believe that these markets are also showing early signs of recovery. Additionally, high capex exerted pressure on the company's bottom-line, as both depreciation and interest costs increased significantly. Nonetheless, effect of this is expected to dilute on the back of an improving business scenario", says Angel Broking.

The report also says, "Going forward, we expect stock valuation to largely be driven by the company's ability to hold volumes (particularly post the recent unrest at its manufacturing plants) and improving business performance of the JVs. We await further clarity on the investments to be made to shift its manufacturing location. We maintain our earnings estimates for FY2011E at Rs 3.1. At the CMP, the stock is trading at 8.9x FY2011E Earnings. We have assigned a target multiple of 5x FY2011E EV/EBITDA and 10x FY2010E consolidated earnings. Hence, we maintain an accumulate on the stock, with a target price of Rs 31."

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To read the full report click on the attachment