Buy Kirloskar Ferrous; target of Rs 140: Centrum Research

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Centrum Research's research report on Kirloskar Ferrous

Kirloskar Ferrous (KFIL) delivered another subdued performance in Q1 due to continued pressure in gross margins and increased other expenses (due to non-recurring items) negating strong volume growth. We remain positive on KFIL’s prospects as it features i) increasing share of high-margin casting business which has spare capacity, ii) cost efficiencies from upcoming low-payback projects albeit slightly delayed, iii) an enviable track record of converting cash profits to cash flows (5Y/10Y AOCF/CP ratio of 1x/0.9x) and iv) strong balance sheet with low D/E of 0.1x.

Outlook

We expect strong earnings growth during FY18-20E driven by castings volume CAGR of 20%. Valuations remain undemanding with attractive cash flow yield of 14.5% & EV/EBITDA of 4.7x on FY20E. Maintain Buy with revised TP of Rs140.

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