Buy Honda Siel Power; target of Rs 360: Finquest

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Buy Honda Siel Power; target of Rs 360: Finquest

Finquest Securities is bullish on Honda Siel Power Products and has recommended buy rating on the stock with a target of Rs 360.

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Honda Siel BSE | NSE 31/05/12 Are Mutual Funds betting on Honda Siel?

Finquest Securities is bullish on Honda Siel Power Products and has recommended buy rating on the stock with a target of Rs 360.

Finquest Securities report on Honda Siel Power Products:

Honda Power Products Limited (HPP) offers a range of Portable Power Products viz, Gensets, Engines, Water Pumping sets, Lawnmower and Brush Cutters. Likely surge in demand for the products offered along with focus on rationalizing the costs would enable it to scale up its financials.

Investment Argument

• Factors like longer duration power disturbances, governments improving focus on meachanised farming and higher investments in infrastructure projects would lead to a surge in demand for the products offered by HPP in future.
• On the back of rising demand for higher-end gensets from small industrial/ private setups and company's focus on the same, we estimate per unit realization to improve from approximately Rs 25000/unit in FY2007 to Rs 28600/unit in FY2009E, thereby driving up sales. 
• HPP, is focusing on developing new applications for its General-Purpose Engines (GPE). With volumes likely to increase by around 15% and margins remaining more or less stable, the business of GPE and Water Pumpsets is expected to contribute to the company's sales growth.
• Multiple factors like focusing on sale of higher end gensets, indigenous manufacturing of certain components and relocating of the Rudrapur plant to Greater Noida would enable HPP to reduce its operational costs and scale up its margins.
• With its cash and land valued at Rs 126/share, the stock provides adequate cushioning to investors thus protecting the downside risk. 

Valuations

At the CMP of Rs 255, the stock is trading at 11.3x and 9.2x its FY2008E and FY2009E EPS of Rs 22.5 and Rs 27.6 respectively and EV/EBIDTA of 7.3x FY2008E and 5.7x FY2009E.  We Initiate Coverage on the stock with a 'Buy' recommendation with a price target of Rs 360.