CIL achieved net profit margin of 16% in FY10 compared to 12%-13% in FY07-09. According to management, margin expansion was partly led by a decline in steel prices and is unsustainable. Net margin could fall to 14-15% over the next two years owing to (1) a rise in expenses on discretionary items like R&D and training, which were held back owing to recession; and (2) a higher proportion of export.
KKC will invest INR 1.5 bn each during FY11E and FY12E at its land at Phaltan (120 acres campus). The company, in the next two years, expects 50%
enhancement in capacity across product ranges through the Phaltan capex. The company’s industrial segment operates in various verticals like construction,
mining, water well drilling rigs, portable compressors, marines, and railways. The segment accounts for ~15-20% of KKC’s revenues. Management expects
20-25% growth in the overall industrial segment in FY11-12E.
Edelweiss has a BUY BUY rating for the company with a 12 month price objective of INR 685(+17% upside), discounting FY12E earning by 20x.
BOFA Merrill has a PO of Rs660 based on 16.5x PE FY12e. Strong EPS and dividend growth likely to drive re-rating.
