Patels Airtemp India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs94
Current market price: Rs68
Better operating performance boosts profits
Result highlights
Patels Airtemp?s net sales in Q2FY2010 declined by 7.5% yoy to Rs20.3 crore on account of lower commodity prices and lesser trading of goods. The operating performance was spectacular with the operating profit margin (OPM) improving by 380 basis points year on year (yoy) to 19.8% in the quarter from 16% in the corresponding quarter of the last year. This was mainly due to increased manufacturing capacities, which reduced low margin trading of goods. Consequently, the operating profit for the quarter rose by 14.7% to Rs4 crore.
The interest cost declined to Rs0.17 crore and the depreciation charge increased to Rs0.21crore. Consequently, the net profit came in at Rs1.57 crore, a 17.3% year-on-year (y-o-y) increase and a 55% quarter-on-quarter (q-o-q) growth. During H1FY2010, the top line grew by 1.2% yoy with the profit after tax (PAT) growing by 17.5% yoy.
The order book in the quarter stood at Rs46 crore, slightly down from Rs48 crore at the end of Q1FY2010. During the quarter the company won orders worth Rs18.3 crore.
Sectors such as power continue to do well and drive the company?s growth and the company is likely to further benefit from the investments in oil & gas and refinery sectors, which are picking pace gradually. Add to this the outlook for fertiliser sector which remains bright with huge investments outlined by Indian Farmers? Fertiliser Cooperative in Gujarat. Further, companies like Patels Airtemp are also likely to benefit from the installation of about 300 new compressed natural gas stations in Gujarat. The company is optimistic about its future growth and expects to witness 15-20% growth in its FY2010 revenues with improved margins.
We are maintaining our estimates for the company and expects its profit to grow at a compounded annual growth rate of 14% over FY2009-11.
At the current market price the stock is available at 4.4x FY2010E earnings and 3.8x FY2011E earnings. Given its low debt-equity ratio of 0.2:1, a dividend yield of 3.3% and a healthy return on net worth of 31.5%, the valuation appears to be extremely attractive. We maintain our Buy recommendation on the stock with a price target of Rs94.