Munjal Showa can touch Rs 120-140: Tater

Munjal Showa can touch Rs 120-140, says Aashish Tater, Fort Share Broking.

Tater told CNBC-TV18, "Munjal Showa is owned by the Munjal Group, the Hero part group. Now, with the recent restructuring into the Hero Honda stock itself, I feel Munjal Showa would be the largest beneficiary because Munjal Showa is a pioneer into the system. They have got the leading market share in the two-wheeler segment with 60% of market share with the only competitor being Gabriel." He further added, "What I have been observing into this company is if someone does the sensitivity analysis, the company can report earnings per share (EPS) which can easily double in next three to three-and-a-half years. The company has been recently reducing its debt, which is going to add to the bottom-line in terms of interest savings. So, if I take a call into a longer-term perspective, they have three plants at Manesar and others. That will result into a growth of sales of close to 34% in next three years because the management has guided close to 6-7% year-on-year (YoY) capacity expansion. So, in next three years, the company would do close to Rs 2,000 crore from current Rs 1,200 crore." "Now, if I see the last fiscal to this fiscal, the company has already shown a decent jump in terms of top-line. With margins improvement going forward, once the plant stabilises, the net profit margin would be hovering around close to 3.5%. That means the company would clock close to Rs 50-60 crore from three years down the line from current Rs 24-25 crore. That would result into a rerating for the stock. We feel the stock can easily touch that Rs 120-140 level." "Now, if I see the recent carnage into the stock, the stock has been falling with very low volumes and it is being accumulated. I feel the stock can see the worst case being at Rs 40-42. If I take a call on the longer-term perspective, you get Rs 2 dividend from the stock like the company has been paying for last four-five years. That means a 5% dividend yield. So, someone would be sitting for next three years, I think the company would pay you Rs 6-7 of dividend itself plus with this capacity expansion and the net profit margin improving with our sensitivity models, we feel the company can get rerated in terms of P/E expansion." "Historically, the stock can easily trade between five times and 13 times and we have taken a median of 7.5 times, taking our target to close to Rs 120-140 mark trading range within next three years. That is a clear-cut upside of 200%. But because our view on the market is that the market would be consolidating in the longer-term from 4,700 to 5,600, no one should be buying this stock at one go. They can make a systematic investment into the stock with 20-30% invested right now because I feel this stock will definitely hog limelight in days to come with both Hero group and Maruti announcing huge capacity and the company being a pioneer into their business."