Buy Setco Automotive - Motilal Oswal

Setco Automotive Ltd (SETC .IN; Mkt Cap USD 43.4m, CMP Rs 112, Buy)

Setco Auto's 3QFY11 results were broadly in line with estimates.

Revenue growth of 42% YoY was driven by higher prices due to larger clutch sizes to account for larger engines that meet the new regulatory norms.

EBITDA margins expanded on account of higher realizations.

Higher interest cost was on account of higher working capital requirement owing to an increase in sales as well as additional equipment set-up that raised depreciation marginally as well.

As earnings are in line with our expectations, we maintain our FY11 and FY12 estimates. We had recommended Setco to gain from higher volumes and higher realizations, and resultant higher earnings. We find the stock to be attractive at 5xFY11 and 4.3xFY12E EV/EBITDA. We maintain our target of Rs. 175 and reiterate BUY.

Source : Equity Bulls

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