Pennar Industries

Pennar at 51 is considered good buy ? Long term view is required.

 

Ventura has recommended it as a multibagger

Pennar Industries
Pennar Industries Ltd (Pennar), a manufacturer of engineering products, is well poised to capture the growth potential envisaged in the solar, railways and pre-engineered building systems industries. It is expected to be a direct beneficiary of the government's thrust on solar energy, railways, infrastructure, 'Make in India' and 'Smart Cities' campaign. We are positive on the company given that:
Order flows in the Systems & Project segment (solar panels and railway wagons) is expected to increase following the government's thrust on higher usage of renewable energy and on up-gradation of railway systems. This segment, which constitutes 35% of revenues, is expected to grow at a 2 year CAGR of 54% to Rs 461 crore by FY17.
Pennar has planned significant capex to increase its capacity across segments. Moreover, it is also scouting for an acquisition to expand its scope in the high margin Industrial Components (hydraulic cylinders and white goods components) segment (EBIT margin 15-16%). Though, the segment is still relatively small (4% of FY17E revenues), it has immense growth potential through the inorganic route.
There is considerable room for growth in Pennar Enviro, a subsidiary engaged in the business of water treatment and fuel additives. With a diversified product portfolio, a sizeable order book and an environmental friendly business profile, we expect Enviro to clock at 2 year CAGR revenue of 27% to Rs 125 crore in FY17.
Consolidated revenues are expected to grow at a 2 year CAGR of 19% to Rs 1,780 Crore by FY17. During FY15-17, the PAT margin is
expected to expand 250 bps to 5.3% in FY17. RoCE is also expected to expand by 920 bps from 17.5% in FY15 to 26.7% during the forecast period.
We initiate coverage on Pennar as a BUY with a Price Objective of Rs 92 representing a potential upside of 88% over a period of 21 months. We have valued the company by applying a PE of 12X on FY17 EPS of Rs 7.7. At the CMP of Rs 49, Pennar is trading at a PE of 6X FY17EPS. Improving profitability and better RoCE should lead to a re-rating of the stock