Rico Auto an underperformer: Prabhudas Lilladher

4131 Investors following Rico Auto. Share this News with them.

0

Like this story, share it with millions of investors on M3

Rico Auto an underperformer: Prabhudas Lilladher

Prabhudas Lilladher has maintained underperformer rating on Rico Auto. At the reigning price of Rs 40, the stock trades at 12.8x the FY08E EPS of Rs 3.1.

Post your opinion here

 

0

Tweet

Share on Tumblr

RELATED NEWS Buy Elecon Engineering; target of Rs 573: HDFC Securities Buy Zensar Tech; target of Rs 484: Sharekhan Hero Honda an underperformer: Macquarie Buy EIH; target of Rs 110: Citigroup Sell SBI; target of Rs 1109: HDFC Securities Rico Auto BSE | NSE 01/06/12 Are Mutual Funds betting on Rico Auto?

Prabhudas Lilladher has maintained underperformer rating on Rico Auto . At the reigning price of Rs 40, the stock trades at 12.8x the FY08E EPS of Rs 3.1.

Prabhudas Lilladher report on Rico Auto:

Result Snapshot

Rico Auto reported a 16.2% rise in its top line, to Rs 2,004 million, well below the 29% we expected. The EBIDTA margin saw a 237-bp drop to 10.9%. The poor EBIDTA margin combined with the high interest burden resulted in a 37% slide in PAT to Rs 53 million. For the year, sales grew 15%, to Rs 7,704 million, while the margin took a 135-bp hit, to 10.8%. Interest cost almost doubled, to about Rs 152 million. PAT was down by 27% to Rs 258 million. At the reigning market price of Rs 40, Rico trades at 12.8x the FY08E EPS of Rs 3.1. We maintain an UNDERPERFORMER rating.

Result highlights

Rico Auto's Q4 FY07 results were disappointing. Top-line growth of 16.2%, to Rs 2,004 million, was well below our expected 29%. The EBIDTA margin plunged to 10.9%, a 237-bp decline. However, even though raw material costs seem to be under control (RM/net sales were 60.6% in Q4 FY07 vs 64.4% in Q3 FY07), the margin slid mainly due to manufacturing expenses climbing to 19.7% sequentially. The poor EBIDTA margin combined with the high interest burden resulted in a 37% decline in PAT, to Rs 53 million. For the year, sales grew 15%, to Rs 7,704 million, while the margin took a 135-bp hit, to 10.8%. Interest cost almost doubled to about Rs 152 million. PAT was down by a little over 27%, to Rs 258 million.

RM costs under control, however...

A 380-bp drop in RM/net sales meant that raw material costs were under control. However, the margin continued to come under pressure mainly from higher manufacturing expenses -- at 19.7% of net sales.

Estimates changed

We have lowered our estimates mainly because of Rico's dismal performance. For FY08, we have lowered our top-line estimates by about 7.6%, to Rs 8,919 million, and our bottom-line estimates by about 24%, to Rs 395 million. RA has reported its lowest ever margins -- of 10.8% in FY07. In FY08, we expect a 150-bp better margin, to 12.3%.

Outlook

The recent appreciation of the rupee has affected export competitiveness. Besides, the subdued outlook on growth in automobiles in general and with its key customer, Hero Honda, in particular, weighs heavily on Rico's performance. Rico has limited organic growth potential and, prompted by this, it has chosen to make a foray into the manufacture of alloy wheels through a JV with China's Zhejiang Jinfei Co. This JV is expected to be fully operational in 18 months. At the reigning price of Rs 40, the stock trades at 12.8x the FY08E EPS of Rs 3.1. We maintain an UNDERPERFORMER rating.