Buy Innoventive Industries; target of Rs 137: Dolat Capital

Dolat Capital is bullish on Innoventive Industries (IIL) and has recommended buy rating on the stock with a target of Rs 137 in its August 8, 2012 research report.

“IIL’s Consolidated sales grew by 9%YoY to Rs 1.84bn (DCe Rs 2.15bn). Motor vehicle division sales declined by 12%YoY/29.5%QoQ to Rs 357mn whereas the tubes and OCTG sales increased by 18.3% YoY and 52.2%YoY to Rs 961mn and Rs 328mn respectively. EBITDA margins (includes other operating income) were at 28.1%. Interest cost has declined by 9%YoY to Rs 151.9mn whereas depreciation cost has risen by 53.7%YoYto Rs 89mn due to increase in capitalization of assets. Consolidated Net profit increased by 10.7%YoY whereas it declined sequentially by 36.2%QoQ to ` 168.5mn.”

 “Sales volumes for CEW tubes rose by 41.2%YoY to 6500 tonnes whereas ERW tubes sales declined by 26.4%YoY to 5150 tonnes. Realizations for CEW and ERW tubes rose by 12.2% and 9.3% to Rs 79500 and Rs 54650 per tonne respectively. Membrane panel strips volumes increased by 20% YoY whereas realizations increased by 5.5% to Rs 59300 per tonne. IL aims to reduce the debt by Rs 10bn in FY13. IIL currently has a net debt of Rs 4.5bn (excluding Rs 1.5bn of factoring limits). IIL has received VAT subsidy of Rs 65mn during the quarter.”

“We maintain our positive stance on IIL givens its cost leadership in CEW tubes through pilgering process and its focus on innovation to develop new markets for its products. With the reduction in profit estimates, we now expect IIL to report earnings CAGR of 29% over FY12-14E led by expansion in CEW tubes and strong traction in OCTG products. IIL is currently trading at 7.2xFY13EPS and 5xFY14 EPS. We maintain our Buy rating on the stock and reduce our target price to Rs 137 per share (6x FY14EPS),”says Dolat Capital research report.

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