The Hindu Business Line : Kirloskar Brothers: Buy

Investors can consider taking fresh exposures in Kirloskar Brothers at Rs 296 on the back of solid performance for the first quarter ended June 2006. Improving margins, impressive order book, increased Government spending on irrigation and water management schemes and rising contribution from exports impart visibility to earnings growth.

The stock has witnessed a steep correction of 46 per cent from its high of around Rs 550 in May. It is now available at 14 times its sustainable FY07 per share earnings. At these levels, the stock appears attractively valued considering the 88 per cent revenue growth and a 330 per cent rise in post tax earnings for the June 2006 quarter. Operating margins too have improved significantly.

Kirloskar Brothers' projects and engineered pumps division, which contributed over 50 per cent of FY06 revenues and close to 75 per cent of its order book, is the fastest growing segment. This division is expected to see buoyant growth in orders on the back of increased Government spending on irrigation and water management schemes. The Government has increased its budget allocation for these schemes by over 50 per cent. Having proved its mettle as a turnkey contractor for lift irrigation systems, the company is likely to receive repeat orders from Government agencies.

For the year ended March 2006, the company had an order book of close to Rs 1,200 crore of which Rs 975 crore was for the projects division.

Its industrial division too is expected to support growth given the capacity expansion in core sectors such as steel, coal and other process industries. The company has managed to increase its market share in these segments.

Exports have been on the rise. Exports contributed Rs 91 crore in the June 06 quarter, close to 10 per cent of FY06 revenues. The company has been establishing itself in African countries and has received repeat orders for irrigation systems.

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