Buy Ahmednagar Forgings; target of Rs 170: Sunidhi Sec

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Buy Ahmednagar Forgings; target of Rs 170: Sunidhi Sec

Sunidhi Securities is technically bullish on Ahmednagar Forgings and has recommended buy rating on the stock with a target of Rs 170 in its April 7, 2011 research report.

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Sunidhi Securities is technically bullish on Ahmednagar Forgings and has recommended buy rating on the stock with a target of Rs 170 in its April 7, 2011 research report.

"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 Rs 300 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."

"AFL's plant at Ahmednagar has successfully qualified for TS Certification from BVQI and the fastener division at Ahmednagar has also been accredited with ISO Certification. Customers include Ashok Leyland, Bajaj Auto, Eicher, Tata Motors, Force Motors, BMW, Briggs & Stratton, Aston Martin, CNH Global, Cummins, Fairfield Atlas, King Automotive Systems, Coventry, Letchworth, Zelter GmbH and Hennef etc. It has a global presence in USA, UK, & Germany.  During Q2FY11 ended December, 31, 2010, net profit has moved up by 93 per cent to Rs 28 crore on 43 per cent higher sales of Rs 219 crore. During H1FY11, net profit of Rs 53.5 crore has advanced by 107 per cent on 51 per cent increased sales of Rs 421 crore. EPS for H1FY11 works out to Rs 14.5."
 
"AFL's plant at Ahmednagar has successfully qualified for TS Certification from BVQI and the fastener division at Ahmednagar has also been accredited with ISO Certification. Customers include Ashok Leyland, Bajaj Auto, Eicher, Tata Motors, Force Motors, BMW, Briggs & Stratton, Aston Martin, CNH Global, Cummins, Fairfield Atlas, King Automotive Systems, Coventry, Letchworth, Zelter GmbH and Hennef etc. It has a global presence in USA, UK, & Germany. During Q2FY11 ended December, 31, 2010, net profit has moved up by 93 per cent to Rs 28 crore on 43 per cent higher sales of Rs 219 crore. During H1FY11, net profit of Rs 53.5 crore has advanced by 107 per cent on 51 per cent increased sales of Rs 421 crore. EPS for H1FY11 works out to Rs 14.5."

"Some of the largest customer markets include: Automotive & Tool Industry. But, application is not limited to automotive sector alone and there is ample scope for expanding the market of forgings to various sectors like Steel, Coal, Metals & Metal Working Industry; Material Handling & Off Highway Equipment Industry; Cement, Chemical Processing & Oil Exploration Industry; Mechanical Power Transmission Equipment Industry; Sugar & Ship Building Industry; Power Sector; Electric Equipment Industry; Defense Sector; Farm Machinery Industry & Railways. According to the performance report released by the Association of Forging Industry, the Rs 13,200-crore forging industry in India has registered a growth of over 71%, from 1.05 million tonnes in 2008-2009 to 1.8 million tonnes in 2009-2010 with capacity utilisation expected to reach 2.3 million tonnes by March 2011."

"Going forward, the forging industry should grow at about 15-20 per cent in the next fiscal. The growth is expected to be led by exports which could be worth US$ 20-22 billion by 2016. Going by these estimates a conservative growth (15-20 per cent) of the production of forgings by 2016 would be to the tune of US$ 6.5 billion."

"The stock can be seen attempting to form a base at around the Rs 120-125 support zone. The stock had earlier bounced back from this support zone. It can give a pullback from the current level. On the upside, it has resistance from the falling trend line at Rs 145. A breach of the trend line should take the stock to Rs 165-170.  At the CMP of Rs 131, the share is trading at a P/E of 4.2x on FY11E and 3.5x on FY12E. We recommended Buy with a target price of Rs 170 in the medium term," says Sunidhi Securities research report.

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To read the full report click on the attachment