Buy Munjal Showa; target of Rs 87: Nirmal Bang

Nirmal Bang is bullish on Munjal Showa and has recommended buy rating on the stock with a target of Rs 87 in its February 7, 2013 research report.

“Munjal Showa Q3FY13 results witnessed an improvement on sequential basis. However, sales were lower on YoY basis reflecting slowdown in sales of its key client customer Hero Moto Corp. EBITDA improved 2.2% YoY and 14.8% QoQ to Rs 25.5 cr in Q2FY13 and margins improved from 6.3% in Q3FY12 and 5.9% in Q2FY13 to 6.5% in Q3FY13. Lower interest expenses and lower tax rate continued to aid bottom line performance.”

“Munjal Showa has been consistently working on reducing its dependence on Hero Moto Corp and focusing more on the other OEMs. Hero Moto now accounts for about ~70% of revenues, compared to 78% in FY10. We believe that a diversification in the client list will help the company to reduce risk of concentration and thereby aid in stable revenues. Moreover, 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 4.44x and 3.87x FY13E and FY14E earnings and 0.89x and 0.76x FY13E and FY14E P/BV with an EV/EBITDA of 2.65x and 2.06x on FY13E and FY14E respectively. We expect RoE of 21.3% for FY14E. We maintain our buy rating on the stock with a target price of Rs 87 (an upside of 29% from current levels),” says Nirmal Bang research report.

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