2QFY2011, Denso India reported 24.4% yoy:: Angel Broking

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For 2QFY2011, Denso India reported 24.4% yoy and 8.4% qoq growth in net
sales to `225cr. EBITDA margins were flat at 2.6% qoq. Net profit declined 27%
qoq to `1cr (`1.4cr) largely due to higher depreciation during the quarter, owing
to the capex incurred towards the expansion of the Haridwar plant. On the back
of strong growth in the auto sector, we expect Denso to post 17% CAGR in sales,
with a gradual increase in EBITDA margins over FY2010–12. Hence, we maintain
a Buy on the stock.


Strong top-line growth, but EBITDA margins flat: Denso India reported strong
growth of 24.4% yoy and 8.4% qoq in top-line to `225cr for 2QFY2011 on the
back of strong demand from OEM manufacturers including Maruti Suzuki and
Hero Honda. For 1HFY2011, net sales grew 26.5% to `432cr (`341cr). During
the quarter, EBITDA margins fell by 282bp yoy to 2.6% (5.4%), but remained flat
qoq. For 1HFY2011, margins declined by 310bp to 2.6% (5.7%).

Outlook and valuation: On the back of strong growth in the auto sector, we
expect Denso to post 17% CAGR in sales, with a gradual increase in EBITDA
margins over FY2010–12. Consequently, we expect net profit to increase at 49%
CAGR over the period. Denso has traded at a five-year average of 9x one-year
forward earnings. Currently, the stock is trading at 6.3x FY2012E EPS. We
maintain a Buy on the stock, with a Target Price of `136, based on 9x FY2012E
EPS of `15.1 and implying an upside of 44% from current levels.