>NITIN FIRE (ANAND RATHI)

Aiming at recovery in 2HFY10; maintain Buy

■ Results miss expectation; aiming at 2HFY10 recovery. Despite revenue declining, Nitin’s earnings grew a marginal 3% yoy, on the back of profits of its associate. We expect a recovery in revenue from 2HFY10; thus, we maintain a Buy.

■ Revenues belie expectation. Revenue for the quarter slipped 6% mainly on lower CNG cylinder sales (a 16% drop). Industrial cylinders (down 1%) and fire-fighting equipment (down 5%) were more or less flat.

■ CNG cylinder demand still weak. Demand for CNG cylinders has been weak for both Nitin Fire and Everest Kanto following poor vehicle sales and lower prices of crude. We expect demand to pick up in 2HFY10 on the back of a general upswing in the
economy.

■ Diversified business model provides stability. The company’s business model (operating in CNG cylinders, industrial cylinders trading and fire-fighting equipment) has shielded it from the major adverse effects of the slowdown. We believe this business model could sustain growth.

■ Valuation. We lower estimates to factor in the slowdown in 1HFY10 and the fall in commodity prices. We increase our target price to Rs401 based on 9x FY11e earnings (a 30% discount to our target multiple for mid-cap capital goods companies).

To see full report: NITIN FIRE