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ABN Amro bullish on Federal Mogul Goetze India

December 20, 2006

ABN Amro in its research report has upgraded 12 month target price of Federal Mogul Goetze India [FMGI] to Rs 583, current market price is Rs 425 [Markets have crashed but this stock has moved up].

FMGI is a turnaround stock. FMGI returned profits for quarter 2QCY06, as the restructuring-led clean-up of the balance sheet was carried out over the March and June 2006 quarters.

FMGI is banking on auto ancillary outsourcing wave. With its skilled manpower and capability, the company is well positioned to benefit from its parent’s plan to shift 25 plants to low-cost
countries by 2008, under its 2006 restructuring programme. Given 10 plant closures have already been announced globally, we expect benefits to begin to accrue for FMGI as early as calendar 1Q07, with the company building scale from that point forward.

FMGI has changed its year-end from March to December to get in sync with its parent. The expectation on the dieselisation of domestic cars in India to promote 18% growth in domestic sales for CY07 and CY08, and further exports are expected to grow more than five-fold as a result of the parent’s proposed plant shift. Revenues are expected to grow from Rs 404 crores in 06 to Rs 677 crores in 2007 and Rs 808 crores in 2008. PAT is expected to quadruple for CY06-08, leading to EPS of Rs24.8 in CY07F and Rs34.3 in CY08F.

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