Sharp improvement in return ratios to continue
ROEs have improved from 10% in FY11 to 24% in FY14, while ROCEs have improved from 12% to 19% during the same period. We believe the increased capacity utilization of the recently added capacity and improvement in EBITDA margins in the coming years would help improve ROEs and ROCEs to 27% and 26%, respectively, by FY16E.
Valuations cheap; Initiate with a Buy at a target price of Rs773
We believe the current P/E of 8.8x FY16E EPS is unjustified, given the fact that the growth rate, going forward, would be very strong, which is supported by a healthy change in the business quality. We initiate coverage with a BUY and a TP of Rs773.