Buy CEBBCO; target Rs 140: SPA Research
SPA Research is bullish on Commercial Engineers and Body Builders Co (CEBBCO) and has recommended buy rating on the stock with a target price of Rs 140 in its August 06, 2012 research report.
August 07, 2012 / 12:52 IST
SPA Research is bullish on Commercial Engineers and Body Builders Co (CEBBCO) and has recommended buy rating on the stock with a target price of Rs 140 in its August 06, 2012 research report.
"CEBBCO's Q1FY13 results came in better than our expectations admist slowdown registered in M&HCV industry. This was on the back of strong demand pull towards FBVs, which saw increase in penetration in the higher tonnage categories. EBITDA margin surprised us positively by expanding 269 bps YoY & 239 bps QoQ to 19.2%. This was led by lower than expected employee costs & other operating expenses and also due to favorable product mix. CEBBCO also entered the high margin replacement market in Q1FY13. With new capacities coming for body-building & margin levers in place, we retain our "BUY" recommendation on the stock.The company has reported very strong set of numbers with net sales growing by 2.1x on YoY basis & 23.9% on QoQ basis to INR 1690 mn. This was led by volume growth of 94% YoY to 7308 units in the FBV segment due to increased penetration in the higher tonnage categories. Sales also got a boost with the execution of wagons order for Braithwaite & Co. CEBBCO delivered 200 wagons in Q1FY13 & will be delivering balance 47 wagons order in the current quarter. PAT at INR 182 mn was up by ~2.6x YoY & 38.9% QoQ.EBITDA margin surprised us positively by expanding 269 bps YoY & 239 bps QoQ to 19.2%. This was led by lower than expected employee costs & other operating expenses and also due to favorable product mix. Employee costs as a % of sales stood at 2%, down by 160 bps YoY & 130 bps QoQ. Other operating & manufacturing expenses stood at 5.1% as a % of sales, down by 380 bps YoY & 200 bps QoQ. Margins also got a boost by 80-90 bps on account of discontinuation of discounting scheme to Tata Motors from Q1FY13.CEBBCO entered the high margin replacement market (~30-35% margins) for body-building in Q1FY13 (though on a small scale), which should also aid margin. It plans to launch this project in few more locations in next two quarters & subsequently launch it on a pan-India basis in FY14. CEBBCO is the only organized player to have entered this segment.CEBBCO's order book stands at ~INR 10 bn. We have raised our EBITDA margin estimate for FY13E & FY14E respectively. We expect CEBBCO's topline& bottomline to register a CAGR of 39% & 64% respectively over FY12-FY14E on the back of increased focus on FBVs by OEMs, entry into replacement market for body-building, foray into power sector and execution of wagons manufacturing from Q1FY13. We retain our "BUY" recommendation and raise our target to INR 140 in 18 months discounting FY14E earnings at 7x P/E and 5.4x EV/EBITDA," says SPA Research report.Institutional holding more than 40% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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