Buy CEBBCO; target of Rs 140: SPA Research

SPA Research is bullish on Commercial Engineers and Body Builders Co (CEBBCO) and has recommended buy rating on the stock with a target of Rs 140 in its November 6, 2012 research report.

“CEBBCO's net sales stood at INR 1538 mn up by 31.2% YoY and down by 9% QoQ. CV segment stood at ~70% of net sales while Replica Bodies segment stood at ~20%. Despite a slowdown in the M&HCV industry, the inclination of OEMs to sell more FBV has favorably supported the company's topline. CEBBCO's turnover from FBV segment stood at ~INR 1380 mn in Q2FY13 as against ~INR 1127 mn in the same period last year. In Q1FY13, the company delivered 200 wagons to Braithwaite for ~INR 300 mn as against 47 wagons for ~INR 73 mn in Q2FY13. PAT stood at INR 163 mn up by 1.7x YoY and down by 10.7% QoQ.”

“EBITDA margin expanded by 757 bps YoY & 108 bps QoQ to 20.3%. This was led by lower COGS as a percentage of sales (72%), down by 460 bps YoY and 161 bps QoQ and also due to increased contribution from higher margin segments. Share of revenue from higher margin replica market (~30-35% margins) stood at 20.5% vis-à-vis 8.9% in Q1FY13 registering a growth of 108% QoQ. PAT Margin stood at 10.6% (up by 250 bps YoY & down by 20 bps QoQ). CEBBCO has signed a MOU with Stone Intermodal Private Limited (SIPL) for manufacturing inter modal rail road trailers. CEBBCO will manufacture the first 5 rakes with each rake consisting of 50 rail road trailers for SIPL.”

“We expect CEBBCO's topline & bottomline to register a CAGR of 39% & 64% respectively over FY12-FY14E on the back of increasing share of FBVs, foray into new segments and increasing contribution from higher margin segments. We retain our "buy" recommendation with a target of INR 140 in 15 months discounting FY14E earnings at 7x P/E and 5.4x EV/EBITDA,” says SPA Research report.

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