Automotive Axles: Rising exports

ANALYSTS' CORNER

Merrill Lynch recommends a "buy" on Automotive Axles. The report sees higher growth visibility for the company. This is due to the greater demand from OEM (truck) customers and commencement of supplies to Europe (and later to US).

The company's growth rate is marginally slower than its group companies, at about 28 per cent CAGR, but it is high on technology and RoE.

The domestic growth visibility is also stronger. Implementation of court legislation on overloading ban is expected to improve growth visibility for the company's domestic truck customers.

Moreover, supplies to Volvo in Europe have commenced, which is expected to be followed by export to its parent ArvinMeritor, US.

The report expects export contribution to rise to about 18 per cent of aggregate revenues by FY08, from five per cent. The stock trades at 13.9x FY07E and 11.7x FY08E (year end September), a 40 per cent discount to group companies.

Elecon Engineering: Strong order book

ASK Raymond James, in its visit note on Elecon Engineering, states that with the government's renewed thrust on core sectors of the economy including power, coal and ports, the company's material handling equipment (MHE) division is expected to register a phenomenal growth.

Its order book position at 4.2x 9M sales clearly indicates good times ahead for the company. Its industrial gear segment, which has registered a 30 per cent CAGR in the last four years is expected to stabilise at 20 per cent per annum.

The company is one of the three largest manufacturers of MHE and industrial gears in South East Asia. The stock is available at a PE of 14x FY07 and 9.9x FY08 earnings.

The report believes that valuations are attractive, factoring the strong order book position, balanced business model and strengthening financials.

Suzlon Energy: Buyout to help growth

CLSA rates Suzlon Energy as an "outperformer". The report is positive on Suzlon's acquisition of Hansen Transmissions, the world's second largest gear box manufacturer for wind turbines, for EV of $ 566 million (a little over 2x last year's revenue).

The deal will help Suzlon achieve a high degree of backward integration, improve product quality and addresses one of the key issues facing turbine manufacturers "� the shortage of key components.

Although Suzlon's current valuations, at 21x FY08 EPS, do factor in sustained high growth, inorganic growth options could provide upside. The Hansen deal is likely to be EPS accretive.

Hansen has around 25 per cent share of the world market for gear boxes used in wind turbines and company's technology for gear boxes is considered to be among the best in the world.