Buy Kalindee Rail Nirman; tgt Rs 324: Emkay

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Buy Kalindee Rail Nirman; tgt Rs 324: Emkay

We believe that fundamentals of the company remains intact and capex in Indian railways to continue in long term. However we are revising our price target downward by 45% to Rs 324 due to – 1) 18% downward revision in FY10E earnings estimates 2) cutting down valuation multiple from 12x to 8x.

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Emkay Research has maintained buy recommendation on Kalindee Rail Nirman with price target of Rs 324, in its report dated 1st August, 2008.

"Kalindee Rail Nirman's (KRNL) Q1FY09 results were better than our expectation at EBITDA margins and bottomline. Revenues increased by 23.6% to Rs 595 million (we expected Rs 643 million) while PAT increased by 41.6% to Rs 41 million, which is 32% higher than our expectation of Rs 31 million. EBITDA margins increased by 180 bps to 13.4%, above our expectations of 10.4%, and as a result EBITDA increased by 42.8% to Rs 79 million. EPS for the quarter stood at Rs 3.8 as against Rs 2.7. Due to delays in few orders and rising interest cost, we are downward revising our revenue estimates by 5.3% and 10.2% to Rs 4 billion and Rs 7.3 billion and PAT by 12.2% and 18% to Rs 404 million and Rs 790 million by FY09E and FY10E, respectively. We expect company to report an EPS of Rs 20.7 and Rs 40.4 in FY09E and FY10E, respectively. We are also cutting our P/E valuation multiple from 12x to 8x and (due to correction in construction and capital goods companies) hence revising (45% downward) our price target from Rs 592 to Rs 324. However, we maintain our BUY recommendation on the stock, given attractive 70% upside on our target price from current level". 

Valuation:

"We believe that fundamentals of the company remains intact and capex in Indian railways to continue in long term. However we are revising our price target downward by 45% to Rs 324 due to - 1) 18% downward revision in FY10E earnings estimates 2) cutting down valuation multiple from 12x to 8x".

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