Buy HBL Nife Power, target of Rs 340: SKP Securities

The SKP Securities report on HBL Nife Power:

June quarter, FY07

“Net sales grew by 41.20% to Rs 105.45 crore (Rs 1.05 billion) in the first quarter of this fiscal, as compared to Rs 74.68 crore (Rs 746.8 million) seen in the same quarter last year. Gross sales of the batteries division grew by 34.32% to Rs 109.91 crore (Rs 1.09 billion), whereas the growth of the Electronics business was pegged at 146.80%. Batteries division continues to rule the roost with contribution of 91.84% to gross sales in the last quarter. The margins in this business improved by 61 bps to 15.95%.”

“Operating margins swelled by 2.51% to 15.41%, helped by slower growth in employee costs and other expenses relative to sales. Raw material cost as a percentage of sales increased by 1.81% to 63.53% in the last quarter.”

“Gross profit went up by 95.43% to Rs 13.27 crore (Rs 132.7 million) on y-o-y basis. High growth in other income and moderate increase in interest costs helped in pushing up the gross profit margins by 3.49% to 12.58%.”

“Depreciation cost went up by 45.45% to Rs 2.40 crore (Rs 24 million) as against Rs 1.65 crore (Rs 16.5 million) seen in the year ago period. The sharp increase in depreciation costs is reflective of the high capital spend of the company in FY06.”

“Net profit grew by 90.24% to Rs 7.02 crore (Rs 70.2 million) and Net profit margins were higher by 1.72% to 6.66% in the last quarter.”

Recommendation

“HBL Nife Power, at the current price of Rs 190 is trading at a P/E multiple of 6.72 X FY08E EPS of Rs 28.26. The last quarter was a decent one, as both business divisions grew at a remarkable pace and margins expanded at both operating and net levels. The expected buoyancy in user industries like telecom, power and steel will help the company ramp up volumes in future.”

“We maintain a buy on the stock with a price target of Rs 340 based on 12 X FY08E EPS of Rs 28.26.”