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Buy Nitin Fire Protection – Kotak Research

July 16, 2007

Kotak Securities has put a BUY recommendation on Nitin Fire and Industries. Nitin Fire Protection Industries Ltd (NFPIL) is India’s leading player in the fire protection, safety, security and intelligent building management systems.

The company is setting up a 500,000 cylinders per annum capacity plant to manufacture high-pressure seamless gas cylinders for both industrial and CNG applications at its Visakhapatnam SEZ. Traditionally, the demand for cylinders grew in India due to industrial, medical fire fighting and beverages segment. Going forward, we expect major growth in demand for cylinders to come from the automobile segment. The use of CNG as an auto fuel is also rising at a rapid pace in neighboring countries like Iran, Pakistan, and Malaysia among others.

The Indian fire protection industry, as a whole, is approximately valued at Rs.20 bn. It is expected to record double-digit growth rates in future. At the current price of Rs.431, the stock is trading at very attractive valuations of 10.5x FY09E earnings and 8.8x FY09E cash earnings. The stock is available at 7.9x EV/EBIDTA multiple and 1.5x EV/sales multiple based on FY09E estimates. Kotak expects the company to report RoE of 34.4% in FY09E. Kotak Sec initiates a BUY recommendation on NFPIL with a price target of Rs.650 over a 12-month horizon, based on the DCF method of valuation.

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