Recommendation: Buy
CMP = Rs 88 (as of Friday)
Price target: Rs 135
Key points:
- Booming user industries: Patels Airtemp India, which manufactures heat exchangers, pressure vessels, industrial fans and blowers and other heat-transfer-technology products, would benefit from the ongoing boom in its user industries such as oil and gas, refineries, power, cement, and fertilisers. The heating, ventilation and air conditioning (HVAC) business, where the company undertakes turnkey projects and manufactures HVAC equipment is also expected to benefit from the ongoing retail boom.
- Expect strong growth in new order booking: The company has a healthy order book of Rs 45 crore, out of which Rs 40 crore is executable over the next six months. I expect the orders to continue to grow at a strong rate of 45-50% annually for the next two years. I also expect new order booking of ~Rs 70 crore in FY2008, which should increase to ~Rs 120 crore by FY2009, while the momentum is expected to continue considering the current buoyancy in its user industries. Exports too are expected to grow at a fast pace. Out of the current order book of Rs 45 crore, about Rs 15 crore pertains to export orders as against export orders of 0.98 crore in FY2007.
- Healthy return ratios: I expect a strong improvement in its return ratios going forward on the back of improved margins and no major capex requirement in the next two years. We estimate the topline to grow at a compounded annual growth rate (CAGR) of 49.1% and the bottomline to grow at a CAGR of 72.7% between FY2007-09.
- Attractive valuations: At the current market price, the stock discounts its FY2009E earnings by 5.9x and quotes at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 3.5x.
- I believe the valuations are very attractive and recommend a Buy on the stock with a price target of Rs 135.
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