Geojit - Munjal Showa

Munjal Showa Ltd.

Munjal Showa, largest manufacturer of shock absorbers in India has come out with good performance in Q3 FY2007.

Net Sales registered a growth of 12.4% to Rs.174.59 crore. OPM% has improved to 7.9% (6%) led by decline in raw material costs as well as other expenses. Sales increase coupled with improved margins and higher other income of Rs.2.4 crore (Rs.1.5 crore) led to 60.6% jump in PBT to Rs.12.85 crore. However a higher tax rate of 36.7% (34.3%) restricted growth in PAT to 54.8% at Rs.8.13 crore.

Munjal Showa is sole supplier of shock absorbers to its promoter, Hero Honda Motors. Around 80% of company’s sales are to Hero Honda. Company's business profile is enhanced by its collaboration with Showa Corporation, Japan, one of the world's leading shock absorber manufacturers that enables it to access world-class technology. In line with uptrend in automobile industry and its new product launches, Hero Honda is expected to sustain its growth trend. This in turn will benefit Munjal Showa which has developed products for Hero Honda’s new launches. In order to reduce its dependence on Hero Honda, company is expanding its client base and aims to increase sales to 4-wheeler significantly by inducting new customers. Munjal Showa continues to supply 100% export requirement of Maruti Udyog Ltd.

Auto component industry is on fast track on back of uptrend in automobile industry. Munjal Showa is well equipped to take advantage of upcoming growth opportunities through new product introductions, change in product mix and access to hi-end technology.

At CMP of Rs.69.1, the share (Rs. 2/- paid up) is trading at 10.2 times FY 2007 expected EPS of Rs.6.8 and 8.4 times FY2008 expected EPS of Rs.8.2. In view of good business prospects, we recommend to “BUY” the share at CMP.