AAL is a leading Indian supplier of automotive components and is an integrated automotive component manufacturer with facilities for forgings, machining and subassemblies in locations in India, the United States and Europe. AAL is a Tier I supplier of auto components to major automobile majors like Maruti, Hyundai, M&M, Ford, Tata Motors, General Motors, Hero Honda, Bajaj Auto, HMSI (Honda Motorcycles and Scooters India) and many others. We expect AAL's focus on integration of its subsidiaries with itself would improve its EBITDA margins to 20.6% in FY09E from 19.3% in FY06A. We also expect AAL's export revenue to grow at a CAGR of 43% for the period of FY06-FY09E mainly because of its strong product line and strong relationships with the global OEMs.

AAL is sitting on a cash chest of Rs13.5bn (Rs97 per share), we expect AAL to utilize it for further inorganic growth and expansion opportunities, which would give a further boost to the revenue and profitability of the AAL in the near future.

We remain positive on the long-term prospects of AAL. At current market price of Rs.415 the stock is trading at a PE multiple of 15x, 14x and 11x on FY07E, FY08E & FY09E consolidated earnings respectively. We maintain a BUY with a target price of Rs. 510.

Download full report here