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Dalmia Securities
Linde India (Sell)
CMP: ₹625.15
Target: ₹546
Linde India, Q3 CY18 result were subdued compare to our estimate. Operational performance and the margins were down by 2.1 per cent q-o-q and 40 bps q-o-q basis, while PAT was up by 98.9 per cent q-o-q due to higher other income, lower depreciation and finance cost.
Valuation: Linde India is one of the key beneficiaries with increasing government initiatives towards developing India’s manufacturing sector, coupled with rapid industrialisation; demand for industrial gases is anticipated to grow at a robust pace over the next five years. With the merger of Linde AG and Praxair, the combined entity would dominate globally & India in industrial gases market. We expect sales and Operating EBITDA to grow at a CAGR of 10.1 per cent and 8.2 per cent respectively, in CY16-CY19E.
Linde is currently trading at an EV/EBITDA of 18.2x in CY18E and 16.7x CY19E. With the anticipated improvement in financial performance, we assign an EV/EBITDA multiple of 12x (five years average EV/EBITDA of 16.7) in CY19E and arrive at a target price of ₹546, indicating a downside of 15 per cent.
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