Easun Reyrolle has target of Rs 125: PN Vijay

PN Vijay, Portfolio Manager, askpnvijay.com is bullish on Easun Reyrolle with a two year target price of about Rs 125.

Vijay told CNBC-TV18, "Easun Reyrolle is a Chennai based player in the power space. It makes switchgears, relays and other products for power transmission and distribution and to some extent power production also. It also has a projects division, which produces full solutions for companies in the power sector."
He further added, "In the last two years Easun Reyrolle has done a very major investment activity both domestically and abroad. While the investments domestically have been focused on manufacturing, the investments overseas have been more on research and development."
"What the company did was they acquired two companies, one in Germany and one in Canada, which are now wholly owned subsidiaries of the Indian company and they have invested heavily in R&D here. They have done this so that they can access major global markets, which are not accessible for them as Indian company and globally the valuations and the margins are much more."
"The company would be manufacturing in India and just a customization would be taking place in Canada and Germany. They are getting the fruits of this already and they have already secured good orders from Australia, Saudi Arabia and such markets."
"In terms of the financials, the last year 2012 the company had a topline of about Rs 335 crore and had an EBITDA of about Rs 35 crore. At the bottomline at the PAT the company had a loss of Rs 4 crore mainly on account of expensing out the expansion and diversification programs and the interest costs hitting them. This process is expected to continue in FY13 also as the ramp-up goes on."
"You will find the full benefits of this in FY14 when we expect the sales to hit about Rs 660 crore and the EBITDA to go up to about Rs 95 crore and the PAT to go up to about Rs 55 crore. That will lead to an EPS in FY14 of close to Rs 24."
"The current market price is about Rs 72, this means the company is trading at three times its FY14 earnings which is very attractive and it is likely at that time the investment activity in the domestic power sector would also have improved. So I am recommending this stock mainly for long-term investors with a two year target price of about Rs 125."
"The risk to this investment is that the ramp-up in turnover may not happen with the speed with which the company expects in which case the interest costs would hurt them. So this risk is always there when you are seeing the major investment activity, but I am still pretty bullish on Easun Reyrolle with a target price of Rs 125." Disclosure: I have no holdings in the above stock.