No Shocks, Only Surprises

Munjal Showa (MSL) formed a part of our recommendation in Issue No 15 dated July 6, 2009. MSL is a manufacturer of shock absorbers for two-wheelers and four-wheelers. The scrip formed a part of the six value picks in our cover story titled ‘Best Dividend Growth Stocks’ and was recommended at a price of Rs 40. The reason why we recommended MSL was simple. First, it’s a part of the Hero Group. Second, 76.30 per cent of its revenues came from Hero Honda, which has been the best performing company in the auto pack despite the economic slowdown. Third, being part INCREASE24.13 per cent CMP Rs 49.65 of the Hero Group it is assured of continuous business.

Moreover, at the price of Rs 40, the scrip was yielding a dividend of 5 per cent and last but not the least, the valuations were quite low. Post our recommendation, MSL outperformed our expectations and has had a brisk run on bourses. It should be noted that we had given a one year target price of Rs 52 for MSL. However, with buoyant market sentiments and improved Q1FY10 results, which saw a topline growth of 19.5 per cent to Rs 232.95 crore (Rs 194.82 crore) and operating profits growing by 57 per cent (though PAT remained flat on increased interest cost), MSL has already achieved our target. Within a month’s time it touched a new 52-week high of Rs 60, providing an overall appreciation of 50 per cent, while at its CMP of Rs 49.65 it is currently giving an appreciation of 24.13 per cent. Thus, with this appreciation already in place it makes sense to book profits and rake in good money with MSL.