Buy Munjal Showa, target price Rs 130: ICICI Direct

ICICI Direct has given a buy rating to Munjal Showa with a target price of Rs 130. The share price moved up by 2.50 per cent from its previous close of Rs 100.10. The stock’s last traded price is Rs 102.60.

Munjal Showa (MSL) is a leading shock absorber (including front forks, struts) manufacturer domestically with a significant market share in the oligopolistic industry. It can be seen as a proxy play on volume & demand recovery at Hero MotoCorp (HMCL), with HMCL accounting for ~80% of its total sales (FY20). Part of the Hero Group (Munjal family), MSL was established in 1985 in technical collaboration with Showa Corporation (Japan), which also holds a 26% stake in the company.

Investment Rationale
The brokerage expects base case valuations to prevail at MSL and assigns BUY rating, valuing the stock at Rs 130 i.e. 4x EV/EBITDA with implied P/B at 0.8x FY20 numbers. However, the brokerage does not view MSL as a long term portfolio play, given the slow pace of client additions, muted margin profile vs. peers and parallel existence of Showa Corporation in Indian as well as exports markets

Financials
For the quarter ended 31-03-2020, the company has reported a Standalone sales of Rs 250.02 Crore, down -16.12 % from last quarter Sales of Rs 298.05 Crore and down -33.73 % from last year same quarter Sales of Rs 377.30 Crore Company has reported net profit after tax of Rs 10.38 Crore in latest quarter.

Promoter/FII Holdings
Promoters held 65 per cent stake in the company as of March 31, 2020, while FIIs held 0.2 per cent and DIIs 0.1 per cent.