Recommendation: Buy
CMP = Rs 423
Price target: Rs 519
Key points:
- After the dismal performance in the second quarter, the Q3FY2008 results of International Combustion India Ltd (ICIL) were inline with our expectation with the revenues reporting a growth of 18.4% to Rs 23.1 crore.
- The material handling equipment (MHE) division reported a growth of 7.6% year on year (yoy) to Rs 17.3 crore, while on a lower base the geared motor & geared box division (GMGBD) reported a growth of 61.5% to Rs 5.9 crore. GMGBD revenues are expected to pick up from FY2009.
- The operating profit grew by 35.4% to Rs 5.2 crore. The operating profit margin (OPM) improved by 280 basis points yoy to 22.3% on account of operating leverage. The net profit was up 59.8% yoy to Rs 3.1 crore, inline with our expectation.
- The current order book of the company stands at Rs 51 crore. Rs41 crore worth of orders are for the MHE division, while the balance Rs 10 crore of orders are for the GMGBD. We expect the order inflow to pick up from FY2009 particularly in the GMGBD given the opportunity from the B-2000 series geared motors and geared boxes.
- At the current market price, the stock trades at 9x FY2008E and 7.3x FY2009E. In terms of enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) the stock is quoting at 4.9x and 3.9x FY2008 and FY2009 estimates respectively.
- I maintain Buy recommendation on this scrip with a price target of Rs 519.
