117.90% YTD Return: This Small Cap Stock Has A Buy Call By HDFC Securities

HDFC Securities, a domestic brokerage and research company, has advised investors to purchase Kennametal India Ltd's stock. The stock has a buy recommendation with a target price of Rs. 2109 and a time period of over the next two quarters, according to the brokerage. Kennametal India's stock has risen 117.90 percent (year-to-date), topping the engineering industry. The brokerage believes that investors may expect a return of around 13% from the current market levels in the following six months.

The brokerage’s take on Kennametal India Ltd

According to the brokerage "Kennametal India Limited, with a strong global parentage, operates in carbide tools and special purpose machines manufacturing for automotive, defense, railways, infrastructure, aerospace and green engineering segments. Nearly half its revenue comes from the automotive segment. Rising opportunities in the field of electric vehicles and aerospace, along with the recovery/growth in the auto sector will help drive business of the company. The company operates in a highly competitive market and the presence of its dual brands can help it bid for business separately. This makes it more agile and competitive. Innovation is a key driver of the company's business and innovative products can help the company be different from its peers and provide it with a competitive advantage. We believe that the company will grow faster going forward, led by the growth in automotive, aerospace and other engineering products segments, efficient capital allocation, strong parent company and healthy balance sheet."

HDFC Securities has said in its research report that the company's "Topline grew by 20.5% YoY and 12.1% QoQ to Rs 237.5 cr in Q1FY22. EBITDA stood at Rs 47 cr, up 69.1% YoY, 21.8% QoQ. EBITDA margin of 19% in Q1FY22 was on account of a strong topline, helping it deliver strong margins in the first quarter. In an inflationary economy, with cost headwinds, the company continues to strive for performance by protecting gross margins and operating margins. Profit after tax doubled on a YoY basis to Rs 28.3 cr, up 31% sequentially."

Buy Kennametal India Ltd Says HDFC Securities

The brokerage has claimed in its report that "We expect revenue/EBITDA/PAT to grow at CAGR of 15.3%/19%/24% over FY21-FY24E, on account of expectation of growth in Auto, opportunity in aerospace and e-mobility, infrastructure, dual brands strategy and strong parentage. Kennametal is currently trading at an attractive valuation of 30xDec23E EPS. With improved return ratios, a top market position vis-à-vis peers, and innovative products, Kennametal deserves a premium valuation. We feel investors can buy the stock at the CMP of 1780 and add on declines to around Rs. 1,602 (27.0xDec23E EPS), for a base target price of Rs. 1960, which implies 33.0x Dec23 EPS. Our Bull case target price of Rs. 2109 (35.5xDec23E EPS), attributes an upside of 18.5%."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.