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Accumulate Ahmednagar Forging and Shiv Vani Oil

November 23, 2007

Ahmednagar Forgings Ltd – AFL
AFL is a 50.7% subsidiary of Amtek Auto, manufactures small- and medium-sized forged components such as connecting rods, gear blanks, shafts, transmission components, flanges and hubs.The company’s sales for the quarter grew by 30.5% to Rs159.2 crore. The growth was led by a 16% increase in the domestic sales and a 62.5% surge in exports. The operating profit margin (OPM) increased by 100 basis points to 20.3%. As a result, the operating profit grew by 37.3%. Higher interest and depreciation costs led the profit after tax (PAT) to grow by 26.8% to Rs17.1 crore.

AFL stock trades at attractive valuations of 7x its FY2009E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.5x. One can BUY the stock for a Target of Rs 300 in 12 months.

Shiv Vani Oil & Gas Exploration Service Ltd – SVL
We first initiated coverage on Shiv Vani Oil and Gas in September. Now it is time to upgrade the stock target based on recommendations from Indiainfoline Analyst.

So far, only 22% of the on-land acreage under the first six rounds of NELP has been awarded under licensing, as compared to 64% for deepwater and 75% for shallow water. This would directly benefit SVL, which is primarily an on-shore player.

SVL has a contract in hand to develop coal-bed methane (CBM) fields with ONGC. The ONGC contract is worth Rs7.5bn and is to be executed in 24 months. SVL stock trades at P/E multiple of 9. 2x and 7.2x on estimated earnings of Rs46.3 and Rs58.5 for FY09 and FY10 respectively. With expected rise in Margins and Order book,Indiainfoline recommends a BUY with a target price of Rs648, implying an upside of 52.8%.

SSKI Securities have set a target price of Rs 450 on the stock in October.

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