Amtek Auto (Q4 F6/10) – BUY (Target Rs215, Upside 17.5%)

CMP Rs183, Target Rs215, Upside 17.5%

• Amtek Auto reported net sales of Rs3.7bn in Q4 F6/10 v/s Rs2.5bn in Q4 F6/09 on standalone basis. Sequentially net sales were marginally down by 3.1%. On consolidated basis, company clocked in revenue of Rs9.9bn, up by 21.3% on yoy basis and 2.6% sequentially.
  

• The company reported an OPM of 27.8% v/s 25.4% in Q4 F6/10 at standalone level. However, sequentially OPM witnessed a decline of 694bps. Fall in the OPM sequentially was on account of sharp rise in raw material prices by 615bps, resulting from change in product mix. For the consolidated entity, OPM stood at 25.5% against 30% and 25.6% for Q4 F6/09 and Q3 F6/10 respectively.

• Other Income declined by 52.8% on yoy basis. Major part of other Income for Q4 F6/10 includes, non-recurring income of Rs81mn on sale of equipment and Rs140mn income from Job work, which is a recurring component.  The company reported an extraordinary expenditure of Rs112mn for Q4 F6/10; this was on account of MTM losses incurred on bond redemption. 

• Adjusted net profit margin at standalone level for Q4 F6/10 stood at 12.7% v/s 24.7% in Q4 F6/09. Net profit margin at the consolidated level stood at 6% against 8% in Q3 F6/10.   

• Assuming conservative revenue CAGR of 10.3% for the consolidated entity over F6/10-12E and OPM of ~25% for same period, we arrive at an EPS of Rs22.3 for F6/12. The stock is currently trading at 9.4x F6/11E EPS, which is low compared to its peers. Assigning a P/E of 11x to F6/11E EPS of Rs19.5, we arrive at a target price of Rs215. Maintain BUY.