|
Summary of Contents
STOCK
IDEA
Federal-Mogul Goetze
(India)
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs559
Current market
price: Rs385
The Mogul of the rings
Key points
-
Leader in
critical auto components: Federal-Mogul Goetze India (FMGI) is
a leading supplier of piston and piston rings to OEMs across
vehicle segments. It owns a 65% share of the OEM market and enjoys
70-80% penetration in the CV and tractor segments. The CV industry
continues to grow at above 30% in FY2007 and the strong
double-digit growth rate is expected to sustain in FY2008. FMGI is
also set to ride the wave of dieselisation of Indian cars. It will
be the 100% supplier for Maruti Udyog's soon-to-be-launched diesel
Swift.
-
Revamp
over, Federal-Mogul gains control: FMGI turned profitable in
Q2CY2006, as it restructured and cleaned up its balance sheet over
the first and second quarters of 2006. As its operations
stabilised under parent Federal-Mogul's new systems, it reported a
14.2% EBITDA margin in Q3CY2006 against 9.1% in Q2CY2006.
-
Huge
potential for outsourcing: Federal-Mogul has identified India
as a low-cost manufacturing location and is shifting ten
manufacturing lines to FMGI's Patiala plant. The resulting
outsourcing opportunity is expected to boost FMGI's exports. The
export benefits are expected to begin accruing as early as from
Q1CY2007, with the company building scale from that point
onward.
-
Attractive
valuations as compared with its peers: FMGI looks attractively
valued as compared to the Tier-I auto-component companies. We
think the lower valuations are not justified, considering the
strong growth prospects on the back of the buoyancy in its
domestic business, rising dieselisation of cars and the huge
outsourcing opportunity. At the current market price of Rs385, the
stock discounts its CY2008E earnings by 12.4x and trades at 7.5x
CY2008 EV/EBIDTA. We recommend a Buy on the stock with a price
target of
Rs559. |
