BUY Banco Products, India Temporary dip, bright prospects; :: Anand Rathi

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Banco Products, India
Temporary dip, bright prospects; initiate with Buy
Banco Products, India, is a leading manufacturer of radiators
and primed to benefit from steady auto growth at home as well
as better demand globally. Strong ties with OEMs, de-risked
business and inexpensive valuations make the stock attractive.
We initiate with a Buy and a target of `103.

 Well placed in the auto segment. Being a leading manufacturer
of automobile radiators in India, particularly in the heavy vehicle
& equipment segment, Banco is set to benefit from the sustained
automobile growth (a 13.7% demand CAGR over FY11-13e).
 Diversification benefits. Besides benefiting from demand from
OEMs, increased penetration in the non-auto space would de-risk
revenue concentration in autos. The acquisition of NRF, Holland,
would provide Banco better access to the European market.
 Growth to recover. Despite a disappointing FY11, we expect
Banco to see a strong recovery in FY12 and register standalone
CAGRs of 21.3% in revenue and 26.4% in profit over FY11e-13e.
 Valuation and risks. We value the stock at `103, based on 9x
FY12e EPS of `11.5. It trades at an attractive 6.2x FY12e
standalone PE. After a disappointing FY11, we expect the PE
multiple to be re-rated, given stable growth ahead. We initiate with
a Buy. Risks: decline in auto demand; negative surprises from a
cement venture in Tanzania and rise in commodity prices.