Buy Munjal Showa; target of Rs 80: AnandRathi

AnandRathi`s research report on Munjal Showa

"Against the backdrop of weak demand, in FY13 Munjal Showa (MS) reported a mere 1.6 percent revenue growth (we estimated 3.2 percent). Capacity was not a major constraint, but CY13 ytd sales of its customers were weak. It may be recalled that, in 3QFY13 also, when demand was weak, revenue declined, 1.9 percent yoy. On the better EBITDA margin and lower interest costs however, its 3Q profit jumped 21.4 percent yoy. We expect this challenging two-wheeler-industry scenario to continue into 1HFY14." “In 4QFY13, overall automotive demand was poor. Hence, MS’s revenues declined 1.6 percent yoy (against expectation of 4.5 percent yoy growth). The EBITDA margin, at 8.1 percent, was in line with our expectation, a 100-bp improvement qoq (but 190bps lower yoy). This resulted in a 19.8 percent yoy EBITDA decline (against our expected 15.8 percent dip). However, the lower tax incidence led to the adjusted profit of Rs223m significantly beating our estimated Rs198m, and declining just 7.2 percent yoy. Gujarat plant a possibility. Although a final announcement has yet to be made, the company may set up a plant in Gujarat with Hero MotoCorp (HMC). If this materialises, capex would be Rs1.2bn-1.5bn; else the normalized range would be Rs300m-350m of annual capex.” “While two-wheeler demand was subdued, better operational performance and a lower tax rate have helped the company put on a good show. With its key customer still facing sluggish demand however, growth is likely to be driven by non-HMC customers. Positives ahead are inexpensive valuations and more revenue from diversification in its customer base. We reiterate a Buy, with a price target of Rs80, based upon 4.2x FY14e (on par with its past three-year average),” says AnandRathi research report.   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.

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