Financial Daily from THE HINDU group of publications
Sunday, Jun 22, 2003
Financial Daily from THE HINDU group of publications Sunday, Jun 22, 2003 |
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Investment World
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Stocks Markets - Recommendation Alfa Laval: Book profits; re-enter at lower levels Sowmya Sundar
The stock has appreciated 25 per cent since our earlier buy recommendation at Rs 240 (Business Line, May 4). Fresh triggers such as improved order-book position could also be used to accumulate the stock. The stock was re-rated after an impressive performance because of improving market conditions on the domestic front and the success in exploring overseas markets Business: Alfa Laval makes machinery and equipment for use in five main industries — vegetable oil refining, distillery, bio-pharma, power and ethanol blending. It also acts as a manufacturing base for certain products such as separators and decanters for the parent company and other group companies. The company has two main divisions: Equipment and process technology. The divisions contributed 40 per cent and 59 per cent of the revenues for the quarter ended March 2003. The margins for the equipment division are higher than that for the process technology division. Alfa Laval is gradually shifting its revenue mix towards the equipment division. Conductive domestic environment: On the domestic front, the revival in the industrial climate triggered fresh investments and, in turn, generated the demand for Alfa Laval. he government's approval for using ethanol-blended petrol triggered demand for equipment used in ethanol blending. The upcoming biotech sector too provided fresh opportunities. Success overseas: To accelerate growth, Alfa Laval turned towards the overseas markets. Export prospects depend on two factors — higher outsourcing by the parent and penetration into newer non-group overseas market for projects. The sharp spurt in sales to group companies and the prestigious overseas orders booked indicate that Alfa Laval has got both its strategies right. Offtake from group companies rose 23 per cent for the year ended December 2002. Recently, it won an order for Rs 23 crore from Vietnam.
Financials: The conducive external environment and the continuous efforts to improve margins resulted in an impressive performance. For the first quarter ended March 2003, sales rose 29 per cent to Rs 89.5 crore and net profits 49 per cent to Rs 15.1 crore. Orders on hand stood at Rs 177.8 crore. The stock shot up sharply after the earnings announcement.
Recommendation: Considering the steep rise in the share price in the last few weeks and the low liquidity in the stock, one can consider booking profits, at least partially. But considering the strong fundamentals, investors can re-enter at lower valuations.
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