Electrosteel Castings
Electrosteel Castings (ECL) is a complete water infrastructure company providing end-to-end solution in water supply & sewerage application systems. I believe that capacity expansion for DI pipes and backward integration into achieving self-sufficiency of key inputs like coking coal and iron ore are the key drivers of growth for ECL going ahead. I expect ECL to record a 30% CAGR in Bottom-line over FY2007-10E. At the CMP of Rs96, ECL is trading at a P/BV of 1.4x FY2010E BV. However, excluding ECLs 48.5% investment in Lanco Ferro, the stock is available at P/BV of 1.3x FY2010E BV. I have valued ECLs 48.5% stake in Lanco Ferro at Rs4/share on current market capitalisation after giving 25% discount. I have valued ECLs business at Rs103/share at which it would command a P/BV of 1.8x, which i believe is fair considering peer valuations and the companys improving business profile. I Initiate Coverage on the stock, with a Buy recommendation.