Business transformation, financial restructuring and productivity coupled with general buoyancy in Indian economy leads to impressive turnaround Transformation from commodity play to niche engineering as value added products ratio enhanced from 20% in early part of decade to 70% in FY09 and expected 80% in FY11 Riding big on Railways expansion of Rs 2,500 bn in the current five year plan; Pennar aims to increase revenue share from Railways to 30% by FY11 from 24% in FY09
Pennar has diversified exposure to various industries like auto, railway, building products, pollution control, white goods, road safety, electrical and fabricated products Enjoy strong relationship with Tata Motor, Ashok Leyland, TVS, ICF, BEML, L&T, ABB, Thermax, BHEL, Alstom Power, HCC and IVRCL.
Pennar has diversified exposure to various industries like auto, railway, building products, pollution control, white goods, road safety, electrical and fabricated products Enjoy strong relationship with Tata Motor, Ashok Leyland, TVS, ICF, BEML, L&T, ABB, Thermax, BHEL, Alstom Power, HCC and IVRCL.
Robust revenue and EBITDA CAGR of 41% and 96% in last six years; EBITDA margin consistently improved from meager 1.4% in FY02 to 11.6% in FY09, and further to 13.7% during 1HFY10 Financial position dramatically improved as D/E ratio enhanced from 13.3x in FY05 to 0.6x in FY09
Gradually enhancing metal capacity in verticals like heavy engineering without pressurizing the balance sheet as major expansion funded by internal accruals High margin pre-engineered building systems is new growth driver; 90% subsidiary Pennar Engineering Building System (PEBS) has technical know-how agreement with NCI Building Systems, USA, one of the world’s largest pre-engineered building solution providers with sales of $967 mn in CY09 (Nov)
Stock currently trades at just 1.3x cash profit during FY10-12 Completed Buyback of 3,125,000 equity share (~2.5% of capital) at a price of ~ Rs 25/share, likely to improve sentiment and reduce float from market.
Gradually enhancing metal capacity in verticals like heavy engineering without pressurizing the balance sheet as major expansion funded by internal accruals High margin pre-engineered building systems is new growth driver; 90% subsidiary Pennar Engineering Building System (PEBS) has technical know-how agreement with NCI Building Systems, USA, one of the world’s largest pre-engineered building solution providers with sales of $967 mn in CY09 (Nov)
Stock currently trades at just 1.3x cash profit during FY10-12 Completed Buyback of 3,125,000 equity share (~2.5% of capital) at a price of ~ Rs 25/share, likely to improve sentiment and reduce float from market.
Valuation
PIL is trading at P/E and EV/EBITDA of 4.4x and 2.9x on FY12 estimated earnings respectively. We believe the market would recognize PIL’s transformation into an engineering company with consistent increase in cash profits and result in re-rating of the stock. We recommend ‘BUY’ with SOTP TP of Rs 95 (206% upside from CMP), where we value standalone
business at Rs 81 (7.0x FY12 EV/EBITDA – inline with 4-year average multiple of 6.8x) and Rs 14/share for PEBS.
PIL is trading at P/E and EV/EBITDA of 4.4x and 2.9x on FY12 estimated earnings respectively. We believe the market would recognize PIL’s transformation into an engineering company with consistent increase in cash profits and result in re-rating of the stock. We recommend ‘BUY’ with SOTP TP of Rs 95 (206% upside from CMP), where we value standalone
business at Rs 81 (7.0x FY12 EV/EBITDA – inline with 4-year average multiple of 6.8x) and Rs 14/share for PEBS.
Source: Internet (Valenotes)
