Indian Hume Pipe: Buy for appreciation of almost 30% with medium to long term perspective

Hem Securities | July 19, 2010, midnight


Co has shown strong growth during FY’17 as topline of company has grown at CAGR of 28.83% since FY’12, operating profit of company has grown at 42% CAGR from FY’12 to FY17 while bottomline of company has registered whopping CAGR of 44% during the same year.


Co’s financial performance can be gauged from its strong return ratios as co has posted ROE of more than 25% in FY17 while it has generated more than 30% return on capital employed during the same year.


Recently company has won order of more than 400 crore which includes work order of Rs 183.46 crore from Tamilnadu Water Supply & Drainage Board, Coimbatore & work order of Rs.260.75 crore from Public Health Engineering Department, Ajmer, Rajasthan, thus giving strong revenue visibility in coming years.


Co has got client from various State Government & local bodies like Indian Railways, Indian Railway Construction Company (IRCON), Rail India Technical And Engineering Services (RITES), Bharat Heavy Electricals Limited (BHEL), National Hydro Power Corporation (NHPC), National Thermal Power Corporation (NTPC), Indian Farmers Fertiliser Co Operative Limited (IFFCO), Satlaj Jal Vidyut Nigam Limited (SJVN), Delhi Jal Board, Karnataka Water Supply & Drainage Board, Karnataka Power Corporation Ltd., Bhopal Municipal Corporation, Indore Municipal Corporation, Kerala Water Authority, Himachal Pradesh State Electricity Board, Chattisgarh Public Health Engineering Department etc.


With widespreading urbanization. & shortfall of access to drinking water in rural area,. Government of India, State Governments and local bodies are making best efforts to supply safe drinking water. Hence number of water supply schemes are under consideration. Also to make cities and rural areas under more hygienic conditions and endeavour towards Swachha Bharat number of sewerage disposals and drainage schemes are also coming up which provides company an opportunity to cater more projects.


Valuation


Established brand name, healthy balance sheet, robust financial performance , strong order book & pioneer in the field of water supply industry since last 90 years makes the company a strong candidate for investment in medium as well as long run. The company is currently trading at 26x of FY17 eps of Rs 20.37 while it is trading at 21x of FY18E eps of Rs 24.80 & 18x of FY19E eps of Rs 29.40. We recommend “Buy” on the stock with price target of Rs 700 (appreciation of almost 30%) for medium to long term investment horizon.

 

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