"Munjal Showa Q1FY14 results were impacted by the slowdown in the overall auto environment. Sales was flat on sequential basis and witnessed a decline of 5 percent YoY. EBITDA margins stood at 7.3 percent vs 6.3 percent in Q1FY13 owing to benefit in the raw material cost and lower other expenses. However, margins were lower on sequential basis. Lower interest expenses and lower tax rate aided in the bottom line performance. Diversification to other OEMs, low gearing ratio, superior return ratios, stable margins, healthy dividend yield and support from the promoter group continues to be the key positives for the company. Lower tax rate (resulting from Haridwar plant) and lower interest expenses resulting from debt repayment (short term borrowing nil and expected to be debt free by Feb 2014) is likely to boost the bottom line performance of the company. At CMP, the stock is trading at P/E of 3.14x FY14E earnings and 0.63x FY14E P/BV with an EV/EBITDA 1.74x on FY14E respectively. Considering the prolonged slowdown in the overall environment, we have cut our target multiple and thereby target price to Rs 72 (Rs 86 earlier) indicating an upside of 27.3 percent from current levels). Buy the stock with a target price of Rs 72," says Nirmal Bang research report.
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