Buy Phoenix Lamps, target price of Rs 120: Broker

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Buy Phoenix Lamps, target price of Rs 120: Broker

Broking house, Angel Broking is bullish on Phoenix Lamps. It has maintained a 'buy rating' on the company with a 12-month target price of Rs 120.

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Broking house, Angel Broking is bullish on Phoenix Lamps . It has maintained a 'buy rating' on the company with a 12-month target price of Rs 120.

About the company's second quarter results review, the report says,

"Phoenix Lamps posted another illuminating quarter beating our estimates marginally. With the company's capacity expansion underway and the ongoing demand surge, outlook for the company is positive."

"Higher demand in general lighting helped net sales of the company for Q2FY2006 climb 27% YoY to Rs 58.2 crore (Rs 582 million) (Rs 46 crore (Rs 460 million))."

"Material to sales ratio increased to 56.6% leading to a 155 basis points correction in operating margins which declined 18%."

"Net profits before exceptional items zoomed 104% YoY to Rs 5.6 crore (Rs 56 million) (Rs 2.75 crore (Rs 27.5 million)) aided by lower taxation benefits from of the SEZ plant at Dehradun."

"As anticipated, contribution of the General Lighting segment was higher during H1FY2006 at almost 44% as demand for compact fluorescent lamps, CFL grew sharply. The company shall stay focused on this segment and gain from the uptrend in this space."

"Automotive lamp sales are likely to pick up in the current half of the fiscal and would end the year with at least a 10% YoY growth. The automotive segment pie at the end of FY2006 is likely to be around 60% of sales, up from 56% during H1FY2006."

About the company's itself, the report says,

"Phoenix Lamps is the market leader in the Automotive Halogen Lamps segment in India. It supplies to all the major original equipment manufacturers, OEMs of the country including Maruti, Hyundai, Tata Motors, Hero Honda and Bajaj. The company has set-up a fully automatic state-of-the-art manufacturing facility for automobiles halogen lamps as well as halogen lamps for general lighting and CFLs."

"The company has a de-risked business model as it caters to the automotive and general lighting segments both in the domestic and foreign markets. The rapid shift from the ordinary incandescent lamps to the energy-efficient CFLs would be a major growth driver for the company going ahead."

About the company's future outlook, the report says,

"Phoenix plans to introduce various new products to improve its product portfolio. With a trained focus on cost reduction, the company's margins are likely to stabilise in the 17-18% range in the ensuing quarters. The company would continue to focus on the CFL segment and enhance the segment's exports share."

"The company's current capacity would be hiked to 150 million to achieve the sales target of Rs 500 crore (Rs 5 billion) by FY2008 announced by the company earlier this month. The company's plants at Dehradun and in the SEZ at Noida will continue to reap in Excise and Income Tax benefits in the near future. Besides modernization, the company's focus continues to be on quality to distinguish itself from the rising threats of Chinese lamps, which are low on quality and price."

About the company's valuations, the report says, "We expect earnings of the company to be boosted through reduction in share capital. Trading at reasonably attractive valuations of 9x FY2006E and 7x FY2007E Earnings, we maintain a Buy on the stock with a 12-month target price of Rs 120.