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Chola Securities
Rane Holdings (Sell)
CMP: ₹700.25
Target: ₹640
Rane Holding Ltd (RHL) is holding company of Rane Group. The company has strategic investments in four subsidiary companies, three joint ventures and one associate company.
In 2QFY20, RHL’s consolidated revenue declined by 18.1 per cent y-o-y to ₹506.1 crore. Revenues from Indian OEMs declined by 33 per cent while revenues from International customers showed a growth of 9 per cent . Gross margins declined by 64 bps/150 bps y-o-y/q-o-q. Employees costs also increased by about 400 bps leading to a contraction in EBITDA margins by 240 bps y-o-y to 7.1 per cent.
Valuation: The models served by the company in UV/LCV and MHCV space reported higher drop in volumes compared to industry, leading to a steep decline in revenues for the company. At CMP, the stock is trading at P/E of14.3x/11.5x on FY20E/FY21E EPS, respectively. We arrive at a revised price target of ₹640 based on P/E of 10x FY21EPS and downgrade to a ‘sell’ on the stock on account of the muted outlook and poor performance of served models.
Risks: Sooner than expected recovery in sales, steep declines in raw material prices.
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