CRISIL lower earnings estimates for Innoventive Inds
CRISIL Research has come out with its report on Innoventive Industries. The research firm has revised downwards its outlook for the automobile industry on account of poor retail sentiment in urban areas and downward revision in GDP estimate.
April 25, 2013 / 14:47 IST
CRISIL Research has come out with its report on Innoventive Industries. The research firm has revised downwards its outlook for the automobile industry on account of poor retail sentiment in urban areas and downward revision in GDP estimate. Given that nearly 35-40 percent of Innoventive Industries Ltd's (Innoventive's) revenues are linked to the domestic auto industry, we have lowered our earnings estimates for the company.
We have moderated our growth expectations for membrane strips and oil & gas products following sectoral issues. However, one of the key products of the company - CEW tubes - primarily exported to the US, is expected to continue to grow on account of recovery in the US. Launch of new products and acquisition of Pune-based Innovative Technomics Pvt. Ltd are expected to support growth over the next two years. Consequently, we maintain our fundamental grade of 4/5 on Innoventive, indicating that its fundamentals are superior relative to other listed securities in India.Auto industry's growth estimates lowered; monsoon adds to uncertainty
CRISIL Research has revised its FY14 growth estimates: for two wheelers from 9-11 percent to 6- 8 percent, for passenger vehicles from 9-11 percent to 5-7 percent and for commercial vehicles from 10-12 percent to 8-10 percent. The revision in on account of lowering of in GDP estimates from 6.4 percent to 6 percent and weak buyer sentiments. Further, GDP growth is contingent on good monsoon which adds to the demand uncertainty. Innoventive's motor vehicle parts segment as well as precision tubes segment cater to the automobile industry and would, thus, be impacted.Membrane strips and oil & gas products face sectoral headwinds
We expect the demand for membrane strips (application in the power sector) and oil & gas products to be subdued due to weak sentiment in the respective sectors. Issues such as capacity addition in the power sector and weak outlook on oil & gas prices may impact the demand for Innoventive's products. Though we expect these segments to retain their competitive advantages (membrane strips: low-cost indigenous manufacturing process; oil & gas products : weak rupee to benefit exports), we have moderated our growth expectations.Earnings estimates reduced due to weak demand in near term
We have reduced our revenue estimates by 13.9 percent for FY14 and 18.1 percent for FY15. We have lowered our EBITDA margin estimates by 1.8 percentage points for FY14 and by 1.4 percentage points for FY15 on account of lower capacity utilisation, higher wage and electricity costs. We broadly maintain our interest and depreciation estimates. Thus, net profit estimates are revised downwards by 33.8 percent for FY14 and 35.9 percent for FY15.Fair value reduced to Rs 163 per share
We have used the discounted cash flow (DCF) method to value Innoventive. Consequent to reduction in earnings estimates, we have revised downwards the fair value to Rs 163 per share. At the current market price of Rs 101, the valuation grade is 5/5.Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
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