Buy SML Isuzu; target of Rs 1225: HDFC Securities

HDFC Securities' research report on SML Isuzu

We hosted the management of SML Isuzu (SMLI) for a series of investor meetings. We believe that SMLI’s growth ahead will be based on (1) Strong brand equity in the school bus segment and debottlenecking of capacity in the peak season, (2) increase in capacity utilisation led by expanding presence in the cargo segment, (3) Technology support from Isuzu Motors (which owns 15% stake in the company), (4) Expanding the product and distribution network, (5) Improvement in margins led by operating leverage. Although FY18 numbers are expected to be dismal owing to a hit in earnings in 1Q (peak season for school buses), we expect 15% volume CAGR for SMLI over FY18-20E, led by strong demand for the school bus segment and expanding presence in the cargo segment. Current valuations at 17/13x for FY19/20 appear attractive.

Outlook
We value SMLI on 20x P/E on Sept-19E EPS. Maintain BUY with a TP of Rs 1225.

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