55% Dividend In 2023: Pharma Stock Is Attractive To Buy, Target Price At Rs 1,010; 51% Potential Upside

Smallcap stock, Krsnaa Diagnostics is an attractive bet for fetching double-digit returns in the near term. The stock is currently moving towards its 52-week high. Brokerage JM Financial said that Krsnaa is participating in new, large tenders and will disclose further details later which is an upside trigger in the pharma stock price. Notably, Krsnaa has consistently paid dividends for a second consecutive year.

On BSE, Krsnaa's share price stood at Rs 667.85 apiece as of December 12 with a market cap of Rs 2,097 crore. YTD, the stock has zoomed by 45%. The stock's 52-week high and low are at Rs 725 apiece and Rs 354 apiece respectively.

In 2023, the company paid a dividend of up to 55% amounting to Rs 2.75 per share. This is higher compared to the dividend payout of 50% aggregating to Rs 2.50 per share in 2022.

Currently, the stock's dividend yield is at 0.41%.

In its latest research note, JM Financial said that it recently visited Krsnaa's new state-of-the-art Kurla (Mumbai) pathology lab. This new lab caters to BMC collection centres and will be leveraged for a B2C foray.

According to the brokerage, it has the potential to test 30K-40K samples/day (scalable to 1 lakh tests/day). The lab's current test offering is 250-300 tests, which will be expanded as it ramps up. In addition to digital ads, Krsnaa is in the process of rolling out a website and mobile app to increase private walk-ins and improve positioning.

Further, it pointed out that while PPP remains its core focus, this new experiment can incrementally contribute to growth over the medium to long term, in our view. In its recent earnings call, Krsnaa maintained its 30% revenue growth guidance for FY24 (ex-Rajasthan) and believes it can grow at this rate over the next 4-5 years.

Also, JM's note mentioned that Krsnaa is participating in new, large tenders and will disclose further details later (upside trigger). The key risk to guidance is delay in execution. EBITDA margin may remain weak in 3Q and pick up in 4Q (post-Assam implementation and other new centre costs).

Finally, the brokerage's note said, "Margin may remain subdued in the near term due to large new centre implementation costs but will start normalising from 4Q. The Rajasthan agreement is yet to be signed despite a favourable verdict from the Rajasthan High Court and the company has once again taken legal recourse to enforce the court order. Given the healthy revenue momentum, new centre visibility and tender pipeline, we believe
there is sufficient scope to re-rate. BUY."

The brokerage has set a target price of Rs 1,010 on Krsnaa. From the current market price, the stock has a potential of over 51% upside ahead.