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Citigroup upgrades Gammon India to BUY

January 26, 2007

Citigroup Research has upgraded Gammon India Ltd to BUY with a price target of Rs 461, 20% upside from current levels.

Citi’s target price is based on a P/E of 19x FY08E (from 17x CY07E), a premium to Nagarjuna’s 16x and a discount to L&T’s 23x. Gammon’s portfolio of projects has been significantly enhanced to 13 from 7.

Gammon ended 2Q FY07 with a strong order backlog of Rs80bn (4.0x FY07E sales), comprising 30-35% low-margin transportation orders, 30-35% high-margin power orders, and medium-margin orders making up the balance. Citi expects order inflow momentum to remain strong with an order booking CAGR of 14% over FY06-09E.

Citi expects an EPS CAGR of 42% over FY06 -09 (FY06A annualized for 12 months), supported by a sales CAGR of 45% and stable EBITDA margins of 9.0 – 9.5% over FY06-09E. Citi’s research expects an EPS of Rs 18.06 and Rs 27.49 for FY08 and FY09.

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