Rico Auto: likely to benefit from auto parts outsourcing

ANALYSTS' CORNER

Edelweiss Securities, in its results update on Rico Auto, maintains its "value buy" recommendation. The company's H1 FY06 results were below expectations, primarily due to slower growth in its key clients Hero Honda and HMSI and rising power costs and capacity expansion costs.

However, the report expects that growth in Rico's consolidated results will be stronger in the second half of FY06. This will be due to stabilised production in HMSI, higher growth in Hero Honda and continuing ramp-up in its exports.

Further, power costs are likely to be marginally lower, thus aiding in profit margins. The report adds that Rico is likely to be one of the biggest beneficiaries of auto component outsourcing over the next 3-5 years and post a 25.9 per cent CAGR in consolidated EPS during FY05-FY07E.

Exports ramp-up will likely be higher in the second half. Management has initiated new dialogue with a few European OEMs.The stock trades at P/E of 19.2 and 14.4 on FY06E and FY07E.

Bank of India:improvement on asset quality front

Motilal Oswal Securities maintains its "buy" recommendation on Bank of India. The company reported growth of 167 per cent in earnings to Rs 130 crore in Q2 FY06, on a lower base as the corresponding quarter had investment hits. On the core front, reported NII declined by three per cent y-o-y.

However, adjusted to amortization expenses, NII has grown by eight per cent. The improvement on the asset quality front continued with significant decline in the gross and net NPAs, backed by robust cash recoveries and aggressive write-offs.

Treasury profits have increased and core fee income has grown at 12 per cent. The report adds that expenses on core banking solution have resulted in higher C ratio. It has a significantly de-risked investment portfolio, as 80 per cent of its total investments book is in the HTM category.

Further, the management is confident of improving its asset quality (net NPAs targeted to 1.5 per cent by FY06). The stock trades at a P/E of 5.6x FY07E.

Larsen & Toubro: rising order intake

Enam Securities, in its results update, rates Larsen & Toubro as "outperformer", relative to the sector. The company has declared revenues of Rs 3300 crore (up 13 per cent y-o-y), EBIDTA of 130 crore (up 33 per cent) and adjusted PAT of Rs 110 crore (up 35 per cent) during Q2 FY06.

Strong volume and margin growth is discernible across all business segments. viz. E&C (EBIT up 85 per cent), electrical (EBIT up 44 per cent) and welding construction equipments (EBIT up 70 per cent). The key highlight has been the strong traction in order intake (up 74 per cent) from both domestic and international operations.

Growth trajectory in the E&C business remains intact as the company posted a 78 per cent increase in new orders at Rs 4300 crore, driven by infrastructure and industrial segments. Margins too bounced back with commodity prices receding and the company moving to variable price contracts. The stock trades 9x FY07E.