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Dalmia Securities
Linde India (Buy)
CMP: ₹427.85
Target: ₹608
Linde India, formerly BOC India, is engaged in the gases business. The company is engaged in the manufacturing of liquefied or compressed inorganic industrial or medical gases and construction of utility projects. Its segments include gases and related products and project engineering.
Linde India’s Q4 CY18 result were in-line with our estimate. Operating EBITDA margins were down by 10 bps q-o-q and 90 bps y-o-y basis, while PAT was up by 47.7 per cent q-o-q due to higher other income, lower depreciation, finance cost & lower tax.
Valuation: Linde India is one of the key beneficiaries of increasing government initiatives towards developing India’s manufacturing sector, coupled with rapid industrialisation; demand for industrial gases is anticipated to grow at a robust pace over the next five years. With the merger of Linde AG and Praxair, the combined entity would dominate globally and India in industrial gases market.
We expect sales and Op. EBITDA to grow at a CAGR of 8.6 per cent and 7.4 per cent respectively, in CY17-CY20E. Linde is currently trading at an EV/EBITDA of 11.0x in CY19E and 9.7x CY20E. With the anticipated improvement in financial performance, we assign an EV/EBITDA multiple of 12x (5 years average EV/EBITDA of 16.7) in CY20E and arrive at a target price of ₹608, indicating an upside of 42 per cent.
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