Buy Alicon Castalloy; target of Rs 95: Sushil Finance

Sushil Finance is bullish on Alicon Castalloy and has recommended buy rating on the stock with a target of Rs 95 in its September 27, 2012 research report.

“Alicon Castalloy is one of the leading manufacturers of aluminum alloy castings in India and the market leader in the manufacture of cylinder heads for two wheelers. Alicon Business share in the Indian 2 wheeler segment is nearly 47% which means that every 3rd Cylinder Head in the 2 wheeler segment on Indian roads is an Alicon product. The Company is also a single source supplier of many critical engine parts to some of India’s largest OEM’s. The Company offer end‐to‐end solutions across the entire value chain covering (Designing, Engineering, Casting, Machining and Assembling) and deliver Gravity Die Casting & Low Pressure Die Casting. They are also pioneers of the unique Pie system for low pressure die casting – a system which enhances productivity with minimum utilization of resources like machines, space and manpower. The products include cylinder heads for passenger cars, cylinder heads for 4‐stroke 2/3 wheelers, support brackets, intake manifolds, EGR valve, rack houses and CAC tanks. The product range also includes Crankcase, Swing Arm, Frame Cover, Wheel Hub, Control Chamber, Oil Slump, Bridge Fork Top and Compressor Housing.”

“Alicon Castalloy derives more than 95% of the revenues from automotive sector, however, none of the customer accounts for more than 20% of the total revenue. The Company being focused on de‐risking and diversifying business intends to enhance contribution from non‐automotive sectors. The Company already has built an esteemed client base in the power, healthcare, agriculture, aviation, defense and other sectors and is steadily growing. The Management expects ‘Alicon Group’ to achieve a top‐line of Rs 10,000 mn by FY15 of which, the listed entity is likely to contribute nearly 70%. The nonauto business is expected to contribute revenues to the tune of Rs 80‐100 mn over the next 3 years. Exports accounted for roughly 10% of the total revenue in FY12 and mainly to USA. Thus, the European turmoil did not have any significant impact on the Company’s business.”

“The last fiscal year was not good for most of the industries including auto ancillaries. Nevertheless, the Company managed to achieve a robust top‐line growth of 48%. During the year, the Company also consolidated its European subsidiary Illichmann Castalloy which is currently going through several rationalizing & streamlining processes. The Company which holds a leading market share in auto sector, particularly in 2‐wheelers market, is now focusing on capitalizing Illichmann’s expertise in a very niche non‐auto sector. The top‐line growth has been attractive and the margins are also likely to witness an expansion going forward. At CMP of Rs 67, the stock which has traded at 5.1x during trailing twelve months (TTM), discounts the FY13E & FY14E EPS of Rs 12.7 & Rs 23.8 by 5.3x & 2.8x respectively. We maintain our buy rating at current levels for target price of Rs 95 (4.0x FY14E EPS),” says Sushil Finance research report.

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