Buy Banco; target of Rs 171: Geojit BNP Paribas

Banco Products Ltd (BPIL) is a manufacturer of radiators and gaskets that have applications in automobiles, oil engines, compressors and locomotives. 80% of the revenue comes from the commercial vehicles (CV) Industry. We expect domestic CV industry to grow at 10% CAGR on better growth in road infra projects & improvement in fleet operators’ business model which will push volume growth in radiator sales. FY16 standalone revenue grew by 17% due to increase in demand from OEMs (Original equipment manufacturers) & aftermarket sales. FY16 consolidated EBITDA margin improved by 350bps to 12.1% due to lower RM cost and factor further improvement of 100bps by FY18E. We factor 16% & 11% CAGR in standalone & consolidated revenue respectively over FY16-18E with healthy domestic market.  

 

We factor 17% CAGR in consolidated earnings during FY16-18E. BPIL is currently trading at P/E of 9.5x and 8.0x on FY17E and FY18E EPS respectively. The current valuation looks attractive and the domestic CV industry volume has started to see signs of revival. We roll-over our valuation to FY18E at a P/E of 10x while increase our target price to Rs171 and revise our rating to Buy.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.