Buy Talbros Automotive for target of Rs 167: Broker

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About the company’s distribution networks in the US and Europe, the report says,

“Talbros Automotive is said to be in the initial stages of talks for setting up distribution networks in the US and Europe. The company intends to increase its presence in both these markets as it foresees great potential for the forging business.”

“TACL may opt for a technical tie-up or a joint venture, or choose to acquire a forging unit abroad. The cost of the future expansion or acquisition is expected to be meet by internal accruals and borrowings. TACL may consider raising funds through a term loan, the preferential issue of shares and debentures, bonds and debts in Indian rupee and foreign currency.”

About the company’s itself, the report says, “TACL is a leading domestic manufacturer of gaskets in India. It produces gaskets of different shapes and sizes for the automobile as well as industrial segments. These serve to secure machined joints, and prevent fluids and gases (oil, gasoline, coolant, fuel vapour, exhaust, etc) from leaking. The company sells gaskets under the brand names Dyna Seal (a premium brand) and Talbros. To sustain its earnings growth rate, TACL is also foraying into the forging business where it will deal in lower-end products, i.e. hammer forging and upset forging.”

About the company’s valuations, the report says, “At the current market price of Rs 98, the stock is discounting its FY07E earnings by 8x and FY07E cash earnings by 6.3x. On the EV/EBIDTA basis, the stock’s enterprise value is discounting its FY07E EBIDTA by 5.1x. We reiterate our Buy recommendation on the stock with a target price of Rs 167.”