Pitti Laminations (Pitti) is a leading manufacturer of electrical steel laminations, motor cores, sub-assemblies, die-cast rotors and press tools. These products find application in basic capital goods products viz. motors and alternators, which are the quintessential products used in process engineering. With the domestic capex cycle at the cusp of a cyclical recovery and good exports visibility, we expect Pitti’s sales and PAT to grow at a CAGR of 21% and 62%, respectively, in FY14-17E.
Strong financial performance to warrant re-rating: With the recovery of domestic capex cycle & good export orders visibility, we expect sales and PAT to grow at a CAGR of 20.7% and 62.4%, respectively, in FY14-17E. The increase in PAT will also be aided by an improvement in EBITDA margins (80 bps over FY14-17E) on account of increasing share of value added products. However, increase in working capital needs may keep debt-equity at ~1.1x (FY14-17E). Hence, on the conservative side, we have valued Pitti at Rs. 160-175, i.e. 12.0x-13.0x P/E on FY17E EPS of Rs. 13.5/share