Research: IL&FS Investsmart Rating: Buy CMP: RS 26

IL&FS Investsmart initiates coverage on Hindustan Dorr-Oliver with a ‘Buy’ rating, with a 15-month price target of Rs 55, providing an upside of 104%. HDO has made rapid strides in its core EPC business, engineering a ~5.4x growth in less then four years with significant contribution from the mineral beneficiation and environmental infrastructure business.

Research: IL&FS Investsmart
Rating: Buy
CMP: RS 26

However, the best is yet to come for HDO as the company is well positioned and has expertise to get into the bigger league with higher ticket contracts. The current order backlog of Rs 700 crore is 2.3xFY08 billings. Based on the pipeline bids, enquiries, and the capex cycle, order accretion is to gain momentum in the next few quarters and grow at 17% CAGR for the next two years.

Traction is expected in the award of big ticket contracts in the next few quarters . IL&FS expects higher demand for its proprietary industrial products which is likely to prop the blended margin going forward with ~14% revenue contribution by FY10. HDO has all the characteristics to graduate to the next league and therefore the concerns reflected in the stock price are unwarranted; hence there is a good investment opportunity.

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