Reliance Money has recommended a buy rating on Kirloskar Oil Engines with a target price of Rs 69 in its April 2, 2009 research report.
“Kirloskar Oil Engines Ltd (KOEL) has announced the demerger of Engine and Auto Component business of the Company into Kirloskar Engines India Ltd (KEIL). In our earlier report dated 28th January 2009 we mentioned that demerger of investments on the books would be beneficial for the investors as it would reflect fair value of core business. In continuation of the same view and considering the potential upside of its strategic investments made in various group and associate companies, we believe after the de-merger KOEL stock to trade at 1x of book value Rs 25.”
“We believe the industry would revive only after the increase in capex by these respective user industries. Considering the outlook on the industry and company we estimate the value of KEIL to be around Rs 44. We estimate ROCE of KEIL to be 28% for FY09E which is considerably higher compared to ROCE of 16% for FY09E. We upgrade our recommendation on the back of announcement of demerger of its core business (engines and auto components) into separate company to BUY with a target price of Rs 69 which offers an upside of 23% from current level,” says Reliance Money’s research report.
Related posts: