Buy Ahmednagar Forgings; target of Rs 160: Sunidhi Sec

“Incorporated in 1977 and taken over by Amtek Group in 2003, AFL is a manufacturer of forging and machined automotive components, cold forged parts and high tensile fasteners. AFL’s six manufacturing facilities are located at Ahmednagar, Chakan, Kurli in Maharashtra and Solan in Himachal Pradesh. Its product range includes closed die steel forgings for the automobiles sector and its product range includes connecting rods and caps, shafts and camshafts, transmission components, crankshafts, gears, forks, levers, hubs, spiders, assorted forgings and steering parts. With the expansion of 60, 000 tonnes at a cost of about Rs300 crore during FY09-10, the forging capacity of 2, 25, 000 tonnes a year, makes AFL one of the largest players in the forging industry. AFL’s products go to the automotive, defence and railway sectors.”

“Ahmednagar Forgings has produced excellent results for Q4FY11. Sales have gone up by 37.1% to Rs250.3 crore from Rs Rs182.6 crore in Q4FY10. Despite higher provision of 9.5% for depreciation, 47.8% in interest and 12.1% for tax, net profit advanced by 35.8% to Rs26.9 crore (Rs19.8 crore). OP and NP margins fell to 25.9% and 10.7% from level of 27.9% and 10.8% previous year in the corresponding period. Q4FY11 EPS stood at Rs7.3 Vs Rs5.4 in Q4FY10.  During FY11, net profit surged 69.5% to Rs108.6 crore on 43.2% higher sales of Rs908 crore. This is despite 15.3% higher provision for depreciation, 17% increased interest cost and 49% higher tax provision. EPS for FY11 stood at Rs29.5. According to the performance report by the Association of Forging Industry, the Rs17,800-crore forging industry in India has registered a growth of over 119%, from 1.05 million tonnes in FY09 to 1.8 million tonnes in FY10 and further to 2.3 million tonnes in FY11. Going forward, the forging industry should grow at about 25 per cent in the next fiscal says AFI. Capacity utilisation has been growing considerably and production is expected to reach about 4 million tonnes by 2015.”

“At the CMP of Rs107, the share is trading at a P/E of 3.4 on FY12 EPS of Rs31.9. We lower our BUY target of Rs170 to Rs160 in the medium term. In view of concern due to higher interest rates affecting the automobile industry, we have lowered our EPS estimates to Rs31.9 from our earlier estimate of Rs37.6 for FY12,” says Sunidhi Securities research report. 

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