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Wednesday, April 13, 2011

Small Cap Stock To Buy - Fedders Lloyd

Sometime back, I came across a stock analyst on TV recommending Fedders lloyd as a small cap stock to buy for medium term. Here is a stock report and views on it.

Fedders lloyd provides turnkey air-conditioning solutions to defense, railway and commercial clients. They also sell air conditioners in retail market.

India has become a consumers economy and appliance businesses are one of the biggest beneficiaries of this. Air conditioners is one such segment where companies are benefiting from increasing demand due to rising disposable incomes from ever growing middle and upper middle class in India. Fedders Lloyd is in good position to ride on this demand and get pie of this market through retail segment.

Coming is the summer season which is the best for air conditioners selling. If you look at recent results of Fedders Lloyd, it reported sales turnover of Rs.364.57 crores. Compare this to Rs.172.59 crores sales in December 2008. The growth in sales is more than 100%.

Look at the Net profit and you would be wowed! From Rs.3.5 crores in December 2008 it has jumped to Rs.22.03 crores in December 2010. A seven fold increment in two years.

Same is the case of EPS that jumped from 1.14 in Dec.08 to 7.16 in Dec.10. All these numbers represent quite a good growth in sales and profits. This makes it Fedders Lloyd a growth stock.

Stock Valuation
In half year till December 2010, as discussed, company has posted an EPS of close to Rs 7.20 on topline of Rs.360 crores. Coming is the summer season which is always good for AC industry. Fedders Lloyd might be in good position to post EPS of Rs.8 for their year ending in June 2011.

At current stock price, the stock trades at PE ratio of 5.7 to expected EPS of 16. Industry wide PE is at 13. This shows Fedders Lloyd is under valued and ignored stock by market.

If company keeps growing it's numbers as discussed above, which it will unless something catastrophic happens and halts the growth of entire economy, they might grow sales and profits at above 25% per year. The stock is available at good valuations now and one may buy stocks of Fedders Lloyd for target price of Rs.130-140 for one year.

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