5 October 2008

Nirmal Bang in its September monthly update has recommended a buy on UB Engineering Ltd with a price target  of Rs 230 in a time span of 12 to 18 months.

Report

UB Engineering Ltd (UBE) is one of India’s leading Engineering companies in the field of installation of industrial plants & substations. UBE serves to various sectors like Power generation (Thermal, Gas, Hydro and Nuclear) and distribution, Refineries,Steel,Cement,Oil, Gas, Fertilizers, Petrochemicals etc. It is a part of the UB Group. UBE was incurring losses during 2000 to 2006 and its net worth turned negative.

We believe:
 UBE is a turnaround story and financial restructuring of company is over with onetime settlement of financial institution’s debt and rights issue of Rs.59.73Cr. Now the company is in a sound financial condition with a positive Net Worth and debt free status.

 Operational restructuring is in process under the leadership of Mr. J K Sardana, E D who is building up a new management team, augmenting asset base, changing business mix &
implementing ERP program for better cost control.

 UBE’s operating margin will catch up with industry standards as it book higher income from direct contracts instead of joint contracts, better efficiency, better mix of business and higher leveraging of fixed cost.

 The strong order book of Rs 569 Crs & healthy growth in inflow of new order increases confidence in UBE achieving our estimated revenue of FY 09 & FY 10.

First sign of benefit of restructuring are visible in Q4 FY 08 and Q1 FY 09 earnings. We believe UBE will have twin advantage of higher revenue growth and improvement of margin.

 We expect UBE’s Revenue and PAT to grow at 55.7% and 59.3% CAGR respectively during FY 08-10.

 At the projected EPS of Rs 13.3 & 19.0 for FY09 & FY10 the stock is trading at Price Earning Multiple of 6.16x & 4.31x respectively.

We are positive on the growth prospects of the company and recommend a BUY on the stock with a price target of Rs 230 to be achieved over a period of 15-18 months.