Buy Kirloskar Brothers with a price target of Rs 408

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Buy Kirloskar Brothers with a price target of Rs 408

Broking house, Man Financial is bullish on Kirloskar Brothers and has maintained buy rating on the stock with a price target of Rs 408.

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Kirloskar Bros BSE | NSE 30/05/12 Are Mutual Funds betting on Kirloskar Bros?

Broking house, Man Financial is bullish on Kirloskar Brothers and has maintained buy rating on the stock with a price target of Rs 408.

The Man Financial reports on Kirloskar Brothers:

Strong growth

(Standalone Q1FY07 results of KBL. KBL standalone contributes 50% of topline and 60% of bottomline of the consolidated entity.)

• Topline grew by 88% YoY at Rs 3.3 billion
• Significant improvement in operating profit margin (+640bps YoY) to 12.4% in Q1FY07. Operating profits grew by 291% at Rs 410mn
• Net profit grew by 337% at Rs 391 million. EPS at Rs 3.7.
• Results are better than our estimates
• We maintain our FY07E standalone EPS estimate of Rs 15.8

Topline growth above expectations

"Topline growth of 88% is ahead of our expectations. However, accounting policies for projects based companies include revenue booking on certain milestone completion, whereby Q1 growth YoY may not be relevant in forming a trend. The order book has expanded from FY06 year-end position of Rs 12 billion to Rs 14 billion (1.5xFY06 sales)."

Operating margins up significantly

"As mentioned above milestone completion in certain projects result in booking of revenues and generally tend to spell higher margins, especially if certain costs have been already booked in the preceding quarters on a conservative basis. Operating profits grew 290% YoY at Rs 410 million with OPM growing 640bps at 12.4%. FY06 full year OPM was 12.8%."

Q1 EPS at Rs 3.7 against our FY07E expectation of Rs 15.8

"Interest expense is higher at Rs 28 million."

Valuation

"KBL has witnessed a 40% correction from its peek of Rs 530. It currently trades at a PER of 12.2xFY07E / 9.7xFY08E and EV/EBITDA ratio of 7.5xFY07E / 6.1xFY08E on a consolidated basis. Our consolidation basis includes Kirloskar Oil Engines (KOEL) and Kirloskar Pneumatic (KPCL) as associate companies. We maintain BUY rating and our price target of Rs 408."