Amtek Auto: Acquisition & JV booster

ANALYSTS' CORNER

Angel Broking has given a 'buy' recommendation on Amtek Auto (AAL) with 18-month target price of Rs 526, which translates into annualised returns of 41 per cent.

At the current market price of Rs 325, the scrip trades at 11.8x FY2007E and 8.6x FY2008E earnings. Given that the stock is inexpensive on a consolidated basis and re-rating is on the cards, acquisitions and joint ventures (JVs) are expected to boost Amtek Auto's profitability going ahead.

Overseas acquisitions, subsidiaries and JVs account for more than 70 per cent of the company's turnover. After strengthening its position in both forgings and casting, in the last five years, AAL bought out seven overseas companies.

This has helped it attain critical scale and geographical spread. Importantly, these ventures being recent and given that the company is currently in a consolidation mode, the markets have not factored in the same.

Subhash Projects: Strong order book

Emkay Research has recommended 'buy' on Subhash Projects & Marketing (SPML) with a target price of Rs 294. With Rs 21 billion orders on hand and improvement in margins, SPML is well poised to grow at a much faster rate of 110 per cent than the industry average of 42-45 per cent, over the next two years.

Key capabilities in the water and electricals transmission & distribution segment create huge opportunity for SPML with the government stepping up spending in the sector.

We expect SPML revenues to grow at a CAGR of 66 per cent over the next two years to Rs 10 billion in FY08E, from Rs 3.6 billion in FY06E.

EPS (consolidated) is expected to witness a CAGR of 110 per cent over FY06E-08E period to Rs 13.6 FY07E and Rs19.6 FY08E. At Rs198, SPML is trading at 14.6x FY07E EPS and 10.1x FY08E EPS, which is attractive on a relative basis (industry "� 17-28x FY08E EPS).

Gabriel India: Exports on upmove

Brics PCG has recommended 'buy' on Gabriel India (GIL) with a target price of Rs 51 in a 12-month timeframe. At the current market price of Rs 29, the stock is discounting its FY07E earnings by 15.1x and FY07E cash earnings by 7x.

Using the P/CE ratio for comparing the company with its peers, as GIL is involved in a capital-intensive business due to which a significant part of revenue is charged to depreciation (cash EPS ranges from 2-3x times its EPS), GIL is trading at a 36 per cent discount to the industry average on P/CE ratio.

The target price of Rs 51 for GIL is arrived at by taking the average of the DCF (Rs 54) and comparable (Rs 47) valuation models, which reflects an appreciation of 76 per cent from the current levels. GIL is the second-largest RCP (ride control products) manufacturer with 29 per cent market share.

The company is also the third-largest manufacturer of engine bearings. In the light of new orders received from Arvin Meritor, GIL's exports are expected to grow at a CAGR of 70.5 per cent over FY06-08E.