22 November 2010

Automotive Axles – 4QSY2010 Results Update-Angel Broking

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Automotive Axles – 4QSY2010 Results Update

Angel Broking recommends a Buy on Automotive Axles with a Target Price of Rs547.

Automotive Axles (AAL) posted good yoy growth in 4QSY2010, though on a qoq
basis the company exhibited subdued performance with top-line and bottom-line
growth lower than expected. Nonetheless, we expect the positive growth in the
commercial vehicle (CV) segment to help the company report better performance
going ahead. We rollover to SY2012E and recommend Buy on the stock.

Weak operating performance led to muted bottom-line growth: For 4QSY2010,
AAL registered 75% yoy growth in net sales to `167cr (`95.4cr), which was lower
than our expectation of `206cr. The company’s top line has been recovering
following the revival in CV volumes. The M&HCV segment, which contributes to
~95% of AAL’s revenue, grew by ~45% yoy during the quarter. EBITDA margin
came in lower than expectations at 11.7%, down 378bp yoy due to rise in input
costs and other expenses (up 210bp and 251bp, respectively). Net profit
registered growth of 36.3% yoy to `9.5cr against our estimate of `15.8cr mainly
because of lower-than-expected performance at the operating level.

Outlook and valuation: During SY2010–12E, we expect AAL to report a ~13%
CAGR in its top line (largely on volume growth). We have also modeled in
moderate margin contraction due to higher input costs. Thus, in terms of
earnings, we expect AAL to register a robust ~12% CAGR over the same period.
At the CMP of `466, the stock is trading at 13.9x SY2011E and 12.8x SY2012E
earnings of `33.6 and `36.5, respectively, lower than its historical five-year
average of 15x. We rollover to SY2012E apnd recommend a Buy rating on the
stock with a Target Price of `547, at which level the stock would trade at 15x
SY2012E EPS (in line with its historical valuation).

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