Buy Emco; target of Rs 97: KRChoksey

KRChoksey is bullish on Emco and has recommended buy rating on the stock with a target of Rs 97 in its November 23, 2010 research report.

“Emco has started production from its Indonesian coal mines in Q1FY11 and is currently producing 40,000 tonnes / month. It expects to sell around

150,000 tonnes and 1,000,000 tonnes in FY11 and FY12 respectively. We believe that it is going to be a key valuation trigger as its coal mines

mature in to full fledged production by FY12 and FY13. Company is well placed to benefit of rising demand from Power sector in India as its coal has

a calorific value of 5,200-5,300 Kcal/ Kg, fit for consumption in thermal power plants.”

“The Company reported a net loss of Rs 54.5 crore in H1FY11 on account of cost over runs and provisioning for cost escalation in ongoing projects.

We believe that company will report a net profit of around 25-30 crores from project business in H2FY11 as it has made the provision for the cost

over runs in Q2FY11.T&D equipment industry is in a sweet spot with PGCIL having a planned capex of around Rs 1.26 trillion from FY11 to FY17,

giving the market participants revenue visibility for next 6-7 years.”

"We have valued the company on a SOTP basis to arrive at a target price of Rs 95, resulting in an upside potential of 49.7 % from current levels of Rs

64.7. Currently the stock is trading at 8.6 x FY12 earnings of power segment (EPS: Rs 7.5). Given the transmission capex from PGCIL for next 5-6

years, diversified business line i.e. transformers (11 KV to 400 KV) and projects (Substation and transmission lines), annual capacity of 20,000 MVA

and 45000 MT in transformer and transmission tower segment, respectively, strong order book in project business (Rs 650 crore at the end of

H1FY11), we have assigned a multiple of 9 to the FY12 earnings of the power segment, resulting in a value of Rs 67.1. We recommends ‘Buy’ with a

target price of Rs 97," says KRChoksey research report.

Disclaimer: The views and investment tips expressed by investment experts 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.