Munjal Showa is a buy for target of Rs 517: Brics PCG

Broking house, Brics PCG is bullish on Munjal Showa , MSL. It has maintained a 'buy rating on the company with a target price of Rs 517.

The Brics PCG report on Munjal Showa:

Result highlights

Net sales grew by 10.9% YoY and 7.9% QoQ

"MSL's net sales grew by 10.9% YoY and 7.9% QoQ to Rs 1.5 billion in Q3FY06. The overall revenue growth for 9MFY06 has been even better at 16.1% YoY to Rs 4.4 billion."

EBIDTA margin increased sharply by 424 bps YoY
 
"The EBIDTA margin increased sharply by 424 bps YoY and 193 bps QoQ to 6% in Q3FY06. This was mainly on account of an 800-bp YoY and 216-bp QoQ decrease in raw material cost as a percentage of net sales. The decline in raw material costs has been supported by the increased localisation of raw materials. Earlier, the company would import a majority of its raw materials from Japan, which proves expensive vis-à-vis local market prices."

Q3 operating profit increased by 277% YoY
 
"The improved EBIDTA margin led to a strong growth in operating profits, which rose significantly by 276.6% YoY and 58.8% QoQ to Rs 93.4 million in Q3FY06. Operating profit for 9MFY06 surged by an impressive 135.9% YoY to Rs 224.1 million as against Rs 95.1 million in 9MFY05."

"Depreciation charges increased 26.6% YoY to Rs 26.2 million, while interest cost rose 950% YoY to Rs 2.1 million in Q3FY06. On a QoQ basis, the interest cost remained flat."

Impressive growth in net profit
 
"As a result, net profit grew strongly by 254.7% YoY and 79.2% QoQ to Rs 52.5 million in Q3FY06. The net profit for 9MFY06 increased by 156.9% YoY to Rs 119.2 million."

"MSL's EPS for the 9MFY06 stands at Rs 14.9."

Valuation

"At the current market price, the stock is discounting its FY07E EPS by 9.3x, FY07E cash EPS by 7.2x and EV/EBIDTA by 5x. We reiterate Buy call on MSL with the target price of Rs 517."

Next Sensex target is 10,400!

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