Buy MRO-TEK with a target of Rs 120: Karvy

The Karvy report on MRO-TEK:

"Buy MRO-TEK with a target of Rs 120."

"MRO-TEK ranks amongst the leading domestic companies in the area of providing internet access products by establishing itself as a leading manufacturer of datacom and networking products in the domestic market, through a combination of in-house developed products and exclusive alliances with global equipment manufacturers. Over the years, it has, built a decent assortment of products and services, which enable it, to offer complete end-to-end integrated networking solutions to its clients. MRO-TEK, manufactures wide range of datacom products like - digital modems, fiber optic modems, fiber-copper converter, multiplexers, routers, and switches."

"We expect the growth impetus to sustain over the next couple of years, on the back of secure and de-risked revenue mix and rapidly growing telecom market. Though the competition is stiff, our reading is it has superior product technology, established service network and long standing client relationships would come good stead in winning clients. Our assumption that the company would be able to drive the growth is based on the fact that, the continuing expansion of landline and mobile operators would hasten the demand growth for networking and datacom products. This trend is likely to continue, given the massive expansion plans of almost all the leading operators in mobile and land line. Our belief is over the next few years, the roll out of broadband services nationally by all the leading telecom operators would lead to a surge in demand for its products. Hence there is a lot of upside to our projected revenue growth rates of 19% in FY07 and 14% in FY08." 

"The turnaround in its fundamentals in the last fiscal is yet to be fully captured in its valuations. It has the ideal blend of the having the right set of alliances and products to benefit from this on-going boom. As of FY05 it had a cash/ share of Rs 8 - which we expect to increase to Rs 12 by FY06. The debt/equity would be steadily declining and all the return ratios would see a steady improvement. Based on our current earnings estimates the stock is trading at attractive valuations Besides, MRO-TEK has been adopting a liberal dividend payout policy and going forward since there is going to be no significant capital expenditure - the company may continue with its liberal dividend payout policy as well."