international combustion

The revenues of International Combustion India Ltd (ICIL) grew by a robust 29.3% year on year (yoy) to Rs16.3 crore in Q3FY2006 on the back of the strong performance of the heavy engineering division (HED).
The operating profit margin (OPM) of the company improved by 620 basis points yoy to 16.9% in Q3FY2006 mainly on account of the lower material cost and the leverage effect coming into play.
The robust performance on the operating profit front was reflected in the bottom line as the net profit grew 110.4% yoy to Rs1.4 crore. The earnings for the quarter stood at Rs6.5 per share, in line with our estimates.
The HED continued with its growth momentum in the quarter registering a strong revenue growth of 41.2% yoy to Rs12.9 crore. But the PBIT margins saw a marginal fall of 170 basis points yoy to 26.1% primarily on account of the change in the product mix.
ICIL has a healthy order book of Rs50 crore which is 1.1x its FY2005 revenues, thus imparting a strong visibility to its earnings. The order book grew by 56.0% on a quarter-on-quarter (q-o-q) basis.
We expect the company to report earnings of Rs22.9 per share in FY2006E and of Rs42.5 per share in FY2007E. ICIL is currently trading at a PER of 8.3X its FY2007E earnings and 4.9X its FY2007E enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBIDTA). We maintain our Buy recommendation on the stock with a price target of Rs450.