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Centrum Broking
Kirloskar
Ferrous (Buy)
CMP: ₹96
Target: ₹155
Kirloskar Ferrous (KFIL) delivered subdued performance in Q3 due to extreme pressure in spreads overshadowing strong volume growth. We remain positive on KFIL’s prospects as it features i) A well invested asset base with spare capacity of 50 per cent/25 per cent in Castings/Pig Iron; ii) Increasing share of high-margin casting business; iii) Cost efficiencies from upcoming low-payback projects; iv) An enviable track record of converting cash profits to cash flows (5Y/10Y AOCF/CP ratio of 1x/0.9x); and v) Strong earnings growth led by higher volumes and operating leverage, buttressed by a low D/E of 0.3x. We expect an impressive EBITDA/PAT CAGR of 26.1 per cent/25.8 per cent during FY17-20E driven by castings volume CAGR of 19 per cent coupled with cost efficiencies. Valuations remain undemanding with attractive cash flow yield of 11.2 per cent/15.4 per cent (FY19E/20E). Maintain ‘Buy’ with unchanged target price of ₹155.
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