Buy Automotive Axles, target of Rs 395: Angel Broking

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Angel Broking has come out with a research report on Automotive Axles (AAL). The research firm has upgraded the stock to buy from accumulate, with a target price of Rs 395, in its report dated November 19, 2009.

"AAL derives its revenues from the medium and heavy commercial vehicle (MHCV) Segment. The CV industry downturn of FY2009, when industry sales declined around 33% for MHCVs, has resulted in the over-supply in the truck industry getting corrected substantially. However, over the last few months, following the recovery in the overall economic and industrial activity, MHCV volumes have also been showing a good sequential recovery. The low base of 2HFY2009 will ensure very high yoy growth numbers in 2HFY2010. Thus overall, we estimate the domestic heavy CV Segment to witness a growth of around 20% in Volumes in FY2010E and around 14% in FY2011E", says Angel Broking.

The report also says, "Hence, the recovery in CV demand will aid the company in registering a CAGR of around 44% in Net Sales and 100% in net profit over FY2009-11E. At the CMP of Rs 309, the stock is trading at 15x FY2010E and 11.8x FY2011E Earnings of Rs 20.5 and Rs 26.3, respectively, which is lower than its historical five-year average of 16x. We believe that the recovery in the CV cycle will help the stock in catching up with its historical valuations. Thus, we upgrade the stock to buy from accumulate, with a target price of Rs 395, at which the stock would trade at 15x FY2011E EPS and 2.6x FY2011E BV."

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To read the full report click on the attachment.........