Buy Pennar Engineered; target of Rs 191: Centrum

Pennar Engineered Building Systems Ltd (PEBS Pennar), a 54% subsidiary of Pennar Industries Ltd, is one of the leading custom designed building systems solutions provider in India. Over the last few years, the company has been expanding production capacity from 30,000 tonne per annum (tpa) to 120,000 tpa to cater to increasing demand. It has also entered in to a technology tie-up with US based NCI Group Inc, to focus on its high margin engineering services segment which gives it a competitive edge over its peers. Increasing industrial requirement (manufacturing and warehouses) and government initiatives like Housing for all by 2022 represent a strong opportunity for the pre-engineered building (PEB) industry which is positive for the company.

At the CMP, the stock is trading at 13.4x our FY18E EPS. With the pick-up in economic activity, we anticipate better demand for pre-engineered building suppliers. Although the benefits of the same would be back ended and could reflect in the company’s performance from FY18 onwards, growth in the near term is likely to be moderate. Given the good financials, opportunities in the PEB space, ramp up in the high margin engineering division and design outsourcing as an additional revenue trigger, we expect revenue and PAT CAGR of 13% and 19%, respectively over FY16-19E. Owing to the back ended growth and low liquidity in the stock we recommend investors to gradually buy the stock with a long term perspective. We initiate coverage with a Long Term Buy rating and a target price of Rs 191 (16x FY18E EPS).