Visit http://indiaer.blogspot.com/ for complete details τ τTIL, one of the oldest construction equipment (CE) suppliers in India, caters to
requirements of the core sectors of the economy such as power, steel and infra.
With the economy on recovery path and likely strong capex on the infrastructure
and industrial fronts, we expect demand for CE to increase and volume to register
a CAGR of 18% over CY2009-13 v/s 13% during CY2005-09. We believe that
TIL is well placed to capitalise on the burgeoning infra and industrial capex.
Overall, we estimate the company to register a CAGR of 31% in revenues and of
24% in profit over FY2010-12. At `681, the stock is trading at inexpensive
valuations of 7.4x FY2012E earnings. We Initiate Coverage on the stock with a
Buy recommendation and Target price of `823.
Rising infra spend and private capex to boost demand for CE: The demand for
CE is driven by infrastructure spend and private capex. Total infrastructure and
industrial capex is expected to register a CAGR of 13% over FY2010-12
increasing from `532,000cr in FY2010 to `684,400cr in FY2012. CE volume is
expected to log a CAGR of 18% over CY2009-13, as against 13% registered over
CY2005-09. Consequently, total demand for CE is expected to increase from
35,000 units at the end of CY2009 to 68,000 units by CY2013.
In sweet spot: TIL has rich experience of over 66 years in supplying construction
equipment to the core sectors. TIL’s strong product alliance-based portfolio places
it sweet spot to capitalise on the vast upcoming opportunities. Overall, we expect
TIL to register a CAGR of 31% and 24% over FY2010-12 in revenues and profit,
respectively.
Attractive valuation: On the valuation front, at current levels, TIL trades at 7.4x
FY2012E earnings, which is at a discount to peers like Bharat Earth Movers
(BEML) and Action Construction Equipment (ACE) that are trading at 12.4x and
9.9x FY2012E earnings, respectively. Moreover, we believe that the discount in
valuation that the stock fetches due to the perceived risk of termination or
discontinuance of CAT dealership is unwarranted. Also on comparing valuations
of companies operating on franchisee business model, we believe TIL’s valuations
are undemanding.
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