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http://www.kotaksecurities.com/pdf/dmb/MorningInsight13032012.pdf
GUJARAT APOLLO LIMITED (GAL)
PRICE: RS.136 RECOMMENDATION: BUY
TARGET PRICE: RS.170 FY13E P/E: 9.5X
q Gujarat Apollo has been observing sluggish demand across Mobile Equipment Group (MEG) divisions. Public spending in new road construction
and maintenance has slowed down due to 1) increase in interest rates 2)
issues related to land acquisition and environmental clearances continues
to affect execution 3) elections in five states including Uttar Pradesh led
to a halt in government spending in respective areas.
q Margins are expected to remain subdued in short and medium term for
the company on account of higher input prices. Company has taken few
price hikes in the past to partly pass on the raw material pressure to its
customers.
q Unlike TIL (that operates in North and East India), GAL has not been observing significant increase in receivables. Company continues to enjoy
strong balance sheet at the end of 9MFY12. We highlight that company's
stock has outperformed the BSE MIDCAP index in past one year.
q We believe that the company is well positioned to benefit from the likely
recovery in road construction and maintenance activity in India over
FY13. We maintain our 'BUY' recommendation with a one year DCF
based unchanged price target of Rs 170.
Company Highlights
We recently interacted with the management of GAL to get perspective on the overall business environment unfolding mainly in the domestic markets. Below are the
key highlights of our interaction.
n Company has been experiencing moderate pick up in the Industrial Product
Group (IPG) segment which includes Asphalt Batch-mix plants, Asphalt Drum-mix
plant and Crushing and Screening plants. However, the pickup in demand in still
significantly lower than expected.
n Order flows from NHAI have expedited in 9MFY12 and we believe that this is
likely to benefit the company and its peer group (TIL, Greaves Cotton) with a lag
of 2-3 quarters.
n Concerns regarding muted public spending on road construction and maintenance continue to exist. Road sector has been observing sluggish growth due to
1) YoY increase in interest rates 2) issues related to land acquisition and environmental clearances continues to interrupt execution 3) elections in five states including Uttar Pradesh led to a temporary halt in government spending in respective areas.
n Company has been observing slowdown primarily in the MEG segment. Demand
for Asphalt Paver and Hydraulic paver has significantly declined vis-à-vis last
year.
n In 9MFY12, GAL has reported muted YoY revenue growth in IPG segment to
Rs.1.2 bn. However, revenues in MEG segment at Rs 409 mn were significantly
lower vis-à-vis last year at Rs 542 mn. We highlight that in last quarter, MEG segment was negatively impacted by inability of BSII and BSIII compliant engines for
Hydraulic Pavers. This has led to the production halt of over one month in the
quarter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight13032012.pdf
GUJARAT APOLLO LIMITED (GAL)
PRICE: RS.136 RECOMMENDATION: BUY
TARGET PRICE: RS.170 FY13E P/E: 9.5X
q Gujarat Apollo has been observing sluggish demand across Mobile Equipment Group (MEG) divisions. Public spending in new road construction
and maintenance has slowed down due to 1) increase in interest rates 2)
issues related to land acquisition and environmental clearances continues
to affect execution 3) elections in five states including Uttar Pradesh led
to a halt in government spending in respective areas.
q Margins are expected to remain subdued in short and medium term for
the company on account of higher input prices. Company has taken few
price hikes in the past to partly pass on the raw material pressure to its
customers.
q Unlike TIL (that operates in North and East India), GAL has not been observing significant increase in receivables. Company continues to enjoy
strong balance sheet at the end of 9MFY12. We highlight that company's
stock has outperformed the BSE MIDCAP index in past one year.
q We believe that the company is well positioned to benefit from the likely
recovery in road construction and maintenance activity in India over
FY13. We maintain our 'BUY' recommendation with a one year DCF
based unchanged price target of Rs 170.
Company Highlights
We recently interacted with the management of GAL to get perspective on the overall business environment unfolding mainly in the domestic markets. Below are the
key highlights of our interaction.
n Company has been experiencing moderate pick up in the Industrial Product
Group (IPG) segment which includes Asphalt Batch-mix plants, Asphalt Drum-mix
plant and Crushing and Screening plants. However, the pickup in demand in still
significantly lower than expected.
n Order flows from NHAI have expedited in 9MFY12 and we believe that this is
likely to benefit the company and its peer group (TIL, Greaves Cotton) with a lag
of 2-3 quarters.
n Concerns regarding muted public spending on road construction and maintenance continue to exist. Road sector has been observing sluggish growth due to
1) YoY increase in interest rates 2) issues related to land acquisition and environmental clearances continues to interrupt execution 3) elections in five states including Uttar Pradesh led to a temporary halt in government spending in respective areas.
n Company has been observing slowdown primarily in the MEG segment. Demand
for Asphalt Paver and Hydraulic paver has significantly declined vis-à-vis last
year.
n In 9MFY12, GAL has reported muted YoY revenue growth in IPG segment to
Rs.1.2 bn. However, revenues in MEG segment at Rs 409 mn were significantly
lower vis-à-vis last year at Rs 542 mn. We highlight that in last quarter, MEG segment was negatively impacted by inability of BSII and BSIII compliant engines for
Hydraulic Pavers. This has led to the production halt of over one month in the
quarter.
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