Recommendation: Buy
CMP = Rs 225
Price target: Rs 300
Result highlights:
- The Q1FY2008 results of Ahmednagar Forgings Ltd (AFL) are in line with our estimates.
- The company's sales for the quarter grew by 30.5% to Rs 159.2 crore. The growth was led by a 16% increase in the domestic sales and a 62.5% surge in exports.
- The operating profit margin (OPM) increased by 100 basis points to 20.3%. As a result, the operating profit grew by 37.3%. Higher interest and depreciation costs led the profit after tax (PAT) to grow by 26.8% to Rs 17.1 crore.
- The company continues to have a strong order book. The plan to expand its capacity to 165,000 tonne is expected to be operational by Q2FY2008.
- At the current market price of Rs 225, the stock trades at attractive valuations of 7x its FY2009E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.5x.
- I maintain Buy recommendation on this stock with a price target of Rs 300.
