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Gujarat Apollo Industries – ABN Amro Investment Call

November 6, 2007

Gujarat Apollo Industries Ltd (GAI) is a leading supplier of asphalt road construction equipment with ~30% market share and is a direct beneficiary of the investments in road infrastructure. Rs3,300bn worth of investment (including share of private sector of Rs877bn) is proposed for road infrastructure in the 11th five year plan.

GAI has started its diversification in related areas. It recently tied up with an European Company for manufacturing of 2 models of soil compactors and 3 models of tandem vibratory compactors. It has also concluded exclusive technical know how agreement with a German Company for design and manufacture of crushers and aggregate producing equipment.

GAI’s export revenues contributed 21.8% of its turnover in FY07. Export market being more lucrative as compared to the domestic market, GAI going forward, intends to grow share of exports to 50% of sales by 2010 by way of doubling its equipment capacity to ~400 equipments in phases with an investment of Rs500mn.

The stock currently trades at Rs 249, GAI trades at an attractive valuation of 12.7x FY08F EPS of Rs19.6 and 9.5x FY09F EPS of Rs26.1. ABN Amro initiates a Buy on GAI with a price target of Rs325.

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