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Munjal Showa Q1FY15 results update

August 4, 2014, Monday, 13:40 GMT | 08:40 EST | 17:10 IST | 19:40 SGT
Contributed by Nirmal Bang

Munjal Showa Q1FY15 results were flat on both QoQ and YoY basis. EBITDA margins stood at 7.3% flat on YoY basis and improved from 6.9% in Q4FY14.

- Net sales increased 9.4% YoY and 4.6% led by strong growth in volumes and improvement in realizations. Hero Moto – the key client of Munjal Showa has registered strong volume growth of 10% in Q1FY15. Going forward management is confident of maintaining sales at current levels given the improvement in sales witnessed by most of its key clients. We expect 7.9% YoY increase in sales for FY15E (vs ~1.0% in FY14).

- EBITDA margins witnessed improvement on QoQ basis and stood flat on YoY basis at 7.3% led by control over costs.

- The current capacity utilization of the company stands at 80%. As per management, with some de-bottle necking it can cater to almost 50% increase in demand without any major capex.

- Haryana State Industrial & Infrastructure Development Corporation (HSIIDC) has demanded additional money for the allocated land in the entire Manesar industrial belt and has asked the units located there to pay or face cancellation of the land parcels allotted to them. Munjal Showa has provided ~Rs 70 lakhs in the last 2 quarters as liability for it under interest expenses.

- Contribution to Hero Moto Corp stood at ~74% of revenues; whereas Honda Scooters accounted for 15%; Honda Cars ~5%, Maruti 5% and balance 1% is contributed by Yamaha.

- The company follows hedging policy in times of volatility and covers almost 50% of its open position.

Shock absorber (2W) contributed ~90% of the revenues and struts and window balancers (4W) contributed nearly 10% of revenues in Q4FY14.

The company will get the benefit only on 30% of the profits from Haridwar, while 70% will get taxed at normal rate from FY15E onwards.

Expectation of improvement in economic environment will help in recovery of the overall automobile sector. With slew of new product launches lined up by its key clients, Munjal is expected to benefit going forward. Diversification will reduce risk of concentration; aiding in stable revenues. Control over raw material cost and other expenses will result in better operational performance. In addition; low gearing ratio, higher return ratios, healthy dividend yield and support from the promoter group continues to be the key positives for the company. At CMP of Rs 140, the stock is trading at P/E of 6.6x FY15E earnings and 1.3x FY15E P/BV with an EV/EBITDA 4.1x on FY15E respectively. We had initiated coverage on Munjal Showa at Rs 72 in Feb 2012 and the stock has generated returns of ~94% since then. We recommend investors to book partial profit at current levels and HOLD the remaining for a target price of Rs 148 (7.0x FY15E EPS); an upside of 5.7%.