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Monday, September 21, 2009

Nilkamal Ltd:Future growth prospects and outlook

Scripscan: Nilkamal Ltd
Bse code:523385
Cmp:95

Story:Nilkamaldelivered EPS of Rs 4.77 for the full FY09, while it has already delivered EPS of Rs 8.04 in Q1 FY10. This is primarily driven by lower expenditure on traded goods and reducing interest and finance charges. Nilkamal posted a net profit after tax and after exception items in Q1 FY10 of Rs 10.28 crores, which translates into 8.04 Rs EPS driven by its low equity base of only 12.78 Mnshares.We are forecasting full year FY10 profit of approx 19 crores, translating into FY10 EPS of Rs 15. At a modest expectation of 10 X multiple on FY10 earnings, this translates into our target price of Rs 150. This provides approx 50% upside over the next 2-3 quarters from the current market price of Rs 95.Nilkamalhas made an effort towards reducing its total debt which will help reduce the finance charges further as they eat into approximately 50% of its EBITDA income. We are comfortable with Nilkamal’sDebt:Equityratio of 1.35 (FY09).Operationally, Nilkamalis also doing well on the working capital parameters (Inventory days + Debtor days = 94 days).Nilkamal is also doing well on asset turnover ratio of approximately 3.92 times. Our only concern is its operating profitability which has pulled down due to increasing admin expenses, personnel expenses and selling expenses. If Nilkamalcan further tighten its bolts on these expenditures, its shareholders (including promoters) will do much better in terms of enjoying a very good ROIC ratio and hence the healthy valuations. We also expect a flattish to moderate growth on its top line in FY10.Overall we feel that Nilkamalis a kind of stock which will give super normal to its shareholders due to its leveraged equity structure. Fundamentally 1% improvement in its operating margin can increase the share price by 50-70 Rs.We are highly bullish on the stock.

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