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BUY Shree Ganesh Forging Ltd – HDFC

November 20, 2007

HDFC Securities is bullish on the prospects of Shree Ganesh Forgings Ltd [SGFL]. They recommend to Buy at CMP & add on declines in the price band of Rs. 95-100.

SGFL manufactures a wide range of forgings including flanges & fittings catering mainly to industries like Oil & Gas, Petrochemical & Pharmaceutical, which together account for almost 75% of the total revenues. Through the recent 100% acquisition of profitable companies viz; Hertecant (European manufacturer of flanges & fittings), & ELFE, France, SGFL’s sales & PAT could improve significantly & improve its overall global presence. SGFL is in the process of doubling its forging capacities from 11,000 MT to 22,800 MT at the existing location at Pawne, Navi Mumbai, by installing two new forging press lines of 2,500- MT press & 4,000- MT press, & an addition of 48 Automated CNC robotic machining lines, which will increase the machining capacity by 300%. SGFL’s sales & PAT have grown at a CAGR of 33.3% & 65.4% respectively over the last five years and we expect this robust growth trend to continue going forward. The consolidated sales & PAT are expected to grow at a CAGR of 79% & 181.6% respectively over FY07-09.

At the CMP, SGFL trades at 8.7xFY08E & 6.4xFY09E consolidated EPS. SGFL has the potential to trade at 8.5xFY09E EPS (consolidated), which gives us a target price of Rs. 157. Buy the stock at the current price & add it on declines in the price band of Rs. 95-100 to earn an appreciation of 32.5% from the current levels over the next three to four quarters.

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