Buy Munjal Showa; target Rs 86: Nirmal Bang

Nirmal Bang's research report on Munjal Showa

"Munjal Showa Q4FY13 results witnessed an improvement on sequential basis with sales growing 1.7 percent QoQ and EBITDA margins improving to 8.2 percent vs 6.5 percent in Q3FY13. Lower interest expenses and lower tax rate continued to aid bottom line performance.  . Operational performance of has improved resulting from control over raw material cost and benefit on the forex side. Lower tax rates have also enabled the company to post a better show on the net level which we believe will continue going forward as well. Going forward, management expects volume growth of around 8-9 percent in FY14E. Moreover, diversification to other OEMs, low gearing ratio, superior return ratios, stable margins, healthy dividend yield and support from the promoter group continues to be the key positives for the company. Lower tax rate (resulting from Haridwar plant) and lower interest expenses resulting from debt repayment is likely to boost the bottom line performance of the company. At CMP, the stock is trading at P/E of 3.35x FY14E earnings and 0.71x FY14E P/BV with an EV/EBITDA 1.86x on FY14E respectively. We expect RoE of 23.0 percent for FY14E. We maintain our BUY rating on the stock with a target price of Rs 86 (an upside of 34.5 percent from current levels)," says Nirmal Bang research report.

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