Buy Denso India; target of Rs 136: Angel Broking

Angel Broking is bullish on Denso India and has recommended buy rating on the stock with a target of Rs 136 in its November 1, 2010 research

report.

“Denso India reported 24.4% yoy and 8.4% qoq growth in net sales to Rs 225 crore for 2QFY2011. EBITDA margins were flat at 2.6% qoq. Net profit

declined 27% qoq to Rs 1 crore (Rs 1.4 crore) largely due to higher depreciation during the quarter, owing to the capex incurred towards the

expansion of the Haridwar plant. On the back of strong growth in the auto sector, we expect Denso to post 17% CAGR in sales, with a gradual

increase in EBITDA margins over FY2010-12. Hence, we maintain a Buy on the stock.

“Strong top-line growth, but EBITDA margins flat: Denso India reported strong growth of 24.4% yoy and 8.4% qoq in top-line to Rs 225 crore for

2QFY2011 on the back of strong demand from OEM manufacturers including Maruti Suzuki and Hero Honda. For 1HFY2011, net sales grew 26.5% to

Rs 432 crore (Rs 341 crore). During the quarter, EBITDA margins fell by 282bp yoy to 2.6% (5.4%), but remained flat qoq. For 1HFY2011, margins

declined by 310bp to 2.6% (5.7%).”

“On the back of strong growth in the auto sector, we expect Denso to post 17% CAGR in sales, with a gradual increase in EBITDA margins over

FY2010-12. Consequently, we expect net profit to increase at 49% CAGR over the period. Denso has traded at a five-year average of 9x one-year

forward earnings. Currently, the stock is trading at 6.3x FY2012E EPS. We maintain a Buy on the stock, with a target price of Rs 136, based on 9x

FY2012E EPS of Rs 15.1 and implying an upside of 44% from current levels,” says Angel Broking research report.

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