Buy Tube Investment; target of Rs 191: Aditya Birla Money

Aditya Birla Money is bullish on Tube Investment (TI) and has recommended buy rating on the stock with a target of Rs 191 in its May 14, 2012 research report.

“TI’s Q4FY12 consolidated net profit grew 93.6% YoY and 38.3% to Rs768.6mn on account of strong performance of its financial services subsidiary Cholamandalam Investment & Finance Company Ltd (CIFCL). CIFCL’s net profit for the quarter grew 66.5% YoY and 49.8% QoQ to Rs608mn. For the quarter, CIFCL-- engaged in the business of providing vehicle finance, home equity loans, business finance and wealth management through stock broking & distribution of financial products -- grew its disbursements by 71% to Rs28.7bn. CIFCL’s net loan book in FY12 grew 46.4% to Rs122.4bn. On a standalone basis, TI’s EBITDA grew 5.4% YoY and 19.3% QoQ to Rs952.5mn. Although TI had some increase in pricing through recovery of rising fuel costs in Q4FY12, it is yet to fully recover the hike in raw material costs it has been faced with since Q3FY12.”

“For FY12 as a whole, in the engineering division, sales volume of precision steel welded tubes grew 15.4% YoY while that of cold rolled steel strips grew 7.2% YoY. In the metal forming division, sales volume of roller chains grew 22% YoY, while that of roll formed car doorframes declined 9% YoY on account of some customer car models not doing well. Exports of roller chains grew strongly at 32%YoY. The railway sections business was almost flat on account of delays in order of wagons by the Railways. Adjusted standalone PAT for the quarter grew 24.3% YoY and 112.6% QoQ to Rs577.6mn on account of growth in EBITDA, higher dividend from CIFCL and lower tax Rate”

“With the automobile sector growth moderating, TI’s standalone business, which has a high exposure to it, would also see growth in its earnings moderate compared to the past three years. Due to problems in land acquisition, its capex plan of Rs7bn over FY12-FY13 to augment capacities across its product segments is likely to face delays by ~6 months. Factoring delays in capacity expansion, we have reduced our volume assumptions for FY14E (Refer Table-1 on Page-2). We cut our FY14E EPS by 6.2% to Rs11.5 and keep our FY13E EPS unchanged at Rs11.0. We like TI on account of (1) its strong engineering expertise in metallurgy and metal forming which has enabled it to attain market leadership across product segments – CEW tubes, roller chains, car doorframes, railway wagon sections (2) diversified businesses in high growth sectors of automobile, consumer (cycles) and financial services (3) capacity expansion plans to capitalise on the robust growth in its diversified businesses and (4) attractive valuations. Our SOTP value of TI for March 2013 remains unchanged at Rs191 per share. Our March 2013 target price of Rs191 implies a potential upside of 42.1%. We maintain our Buy rating on TI,” says Aditya Birla Money research report. 

Non-Institutions holding more than 90% in Indian cos  

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