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Buy Kirloskar Ferrous; target of Rs 140: Centrum

11 September, 2018 11:59 AM
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Buy Kirloskar Ferrous; target of Rs 140: Centrum

Centrum is bullish on Kirloskar Ferrous has recommended buy rating on the stock with a target price of Rs 140 in its research report dated September 10, 2018.

Kirloskar Ferrous (KFIL) won two key iron ore mining assets in the Karnataka auctions which is a long term positive event for the company given the 100% captive integration for pig iron business with good quality ore, close proximity of mines to KFIL plant, cost savings v/s open market purchase and improved efficiency due to better value in use. We remain positive on KFIL’s prospects as it features i) increasing share of high-margin casting business which has spare capacity, ii) cost efficiencies from upcoming low-payback projects albeit slightly delayed, iii) an enviable track record of converting cash profits to cash flows (5Y/10Y AOCF/CP ratio of 1x/0.9x) and iv) strong balance sheet with low D/E of 0.1x. We expect strong earnings growth during FY18-20E driven by castings volume CAGR of 20%. Maintain Buy with TP of Rs140.

We see scope for re-rating and value KFIL using our conservative five-year AOCF/EV yield methodology to arrive at our TP of Rs140. Maintain Buy. Key risks are lower volumes and raw material volatility.


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