Recommendation: Buy
CMP = Rs 378
Price target: Rs 519
Key point:
- In Q4FY2008, the revenues of International Combustion Ltd (ICL) grew by 20.3% to Rs 29 crore. On a segmental basis, the revenues of the material handling equipment division grew by 9.1% to Rs 20.1 crore whereas that of the geared motor and gear box division increased by a strong 53.6% to Rs 9.1 crore, however, the division’s margin fell sharply by 350 basis points to 11.2%.
- The operating profit of ICL grew by 21% to Rs 5.9 crore during the quarter. The operating profit margin was flat at 20.4% (up ten basis points). The company’s interest cost declined by 25% to Rs 0.1 crore and its depreciation charge rose by 11.4% during the quarter.
- Consequently, the net profit grew by 40.2% to Rs 3.5 crore, which was ahead of our expectations mainly due to a higher than expected revenue growth during the period. The current order book of the company stands at Rs 56 crore of which Rs 49 crore worth of orders are for the material handling division and the balance Rs 7 crore are for geared motor division.
- At the current market price the stock trades at 6.3x FY2009E earnings and enterprise value /earnings before interest, depreciation, tax and amortisation of 2.9x on FY2009E.
- I recommend a Buy option on this stock with a price target of Rs 519 over next 6-7 months.
