Buy Banco Products; target of Rs 171: Geojit

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Geojit BNP PARIBAS research report on Banco Products India

Banco Products India Ltd (BPIL) is a leading manufacturer of radiators and gaskets in the country. It has grown at 10% CAGR on a consolidated basis when the automotive industry has de-grown -1% between FY11 and FY14. This revenue growth was made possible by excellent performance of its subsidiaries which delivers almost 60% of consolidated revenue. In order to focus more on the core business, BPIL has divested its entire stake in Lake Cement Ltd which it has invested in FY10 as part of their diversification plan. Almost 80% of revenues come from commercial vehicle (CV) segment which is currently muted, but once the CV volumes pick up BPIL will outperform the peers. We factor earnings growth of 21% for FY15E and 30% for FY16E, which is based on 20% CAGR in sales during FY14-FY16E. We also build 14.7% and 14.6% margin for FY15E and FY16E.

BPIL is currently trading at P/E of 7.9x and 7.0x on FY15E and FY16E respectively. We factor earnings growth of 21% for FY15E and 30% for FY16E, which is based on 20% CAGR in sales during FY14-FY16E. We believe the company has gone through worst of what the industry can offer. But we strongly believe that once demand scenario for CV improves, there is a strong case for further upgrade in earnings and re-rating in valuation. The stake sale in unrelated business also adds color to the stock. We value the stock at 9x over FY16E earnings with a target price of Rs171 and recommend BUY rating.

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Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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