Buy International Conveyors for target of Rs 180: Networth

The Networth Stock Broking report on International Conveyors:

Investment rationales

“International Conveyors is one of the leading players in PVC conveyor belts. We expect that the company would be a key beneficiary from the increasing mining activity in India as well as in the global market.”

“The company’s product is globally well accepted and finds wide range of application in mining and material handling activities. The global market is estimated around Rs 60 billion. Currently, the company is exporting 40% of its production. Looking at the investments in mining activities and material handling in the global market, we expect the company to benefit in the coming years.”

“In the domestic market, there are only two established players, Fenner Belting Co. and International Conveyor in the conveyor belt segment. ICL has cornered around 50% of the market share in the domestic market.”

“In this industry the entry barriers are very high due to stringent application norms like getting approval of their product from Director General Mining Safety and the user industry, which will test the product for 18 months.”

Concerns

“High crude oil prices may lead to increase in the raw material prices which may affect the margins of the company in the coming years.”

Valuations

“International Conveyor is an established player in the PVC conveyor belt segment. The company is well placed to grab a major chunk of business from growing mining focus of the government in short to medium term.”

“We believe that International Conveyor would be the key beneficiary from the huge investment in the mining activities in India. We expect the company’s revenue to grow by CAGR of 30% over a two-year period. The margins are expected to remain at the same levels as in the current year, leading to rise in the net profit by 71.09% in FY07 and 38.77% in FY08.”

“At the CMP, ICL trades at a P/E of 5.18x and 4.09x its FY07E and FY08E EPS of Rs 22.17 and Rs 28.58 respectively. We recommend investors to ‘Buy’ the stock with a price target of Rs 180 based on FY07 valuations over the next 12 months.”

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