2 Multibagger Stocks To Buy As Suggested By Axis Securities

National Aluminium Company Limited (NALCO) and Praj Industries Ltd have both received a buy call from brokerage company Axis Securities. On the NSE, both stocks have given multibagger returns in the last year, as NALCO surged 117.47 percent and Praj Industries climbed 114.11 percent. NALCO has a target price of Rs 150, whereas Praj Industries has a target price of Rs 477, according to the brokerage.

Investment rationale for NALCO

The brokerage has claimed "The recent geopolitical tension in Europe has pushed prices to a 13 year high level above $3,300/t and Nalco is well placed to benefit from the higher prices. In response towards a robust Aluminium prices outlook, Nalco has started optimising its Aluminium production by targeting 100% utilisation of its 460ktpa smelter. In Q3FY22, the company produced a record level of production of 115kt (annualises to 460ktpa), highest in its history and has operationalized its entire pot room (all the 960 pots are under operation now) to capitalise on the high Aluminium prices."

According to Axis Securities "Historically, Alumina contributed higher EBITDA, on an average ~70% over the last decade (FY12-21), while the Aluminium and wind power/other segment contributed the remaining 20% and 10% EBITDA respectively. With a high grade captive Bauxite mine, Nalco is already in the first quartile of the Alumina cost curve, while its high fixed costs have pushed the Aluminium smelter at the top end of the cost curve. However, since March 2021, with the rise in Aluminium prices, the EBIT/tonne of Aluminium has increased substantially (9MFY22 EBIT/tonne at ~$790/tonne vs. $126/tonne in 9MFY21). Each tonne of Aluminium sale is generating $560/tonne higher EBIT/tonne than two tonnes of Alumina."

"We have a BUY rating and value the company at 5.5x FY24 EBITDA and 0.5x book value of CWIP to arrive at the target price of Rs 150/share, implying an upside potential of 24% from the current levels," said the brokerage in a note.

Investment rationale for Praj Ind

According to the brokerage "With the global commodity prices increasing due to Russia-Ukraine war crude has reached its historical high levels, such high crude prices effectively increase the Ethanol-Crude price difference which makes blending Ethanol in petrol more economical and rational. This shall create a tailwind by increased demand of Ethanol in terms of fixed contracts to distilleries and in turn attract investment in distilleries by other players which forays well for Praj Industries."

"Praj is witnessing continued good traction in its grain-based distilleries business which is expected to further improve with govt increasing the allocation for excess grain for ethanol conversion. This shall help the prospective customers in 2 key issues, raw material supply assurance and price assurance with increased crude prices both improving the overall project feasibility for the grain-based projects," the brokerage has highlighted.

"Praj recently bagged a huge order in the CPS business, with the increasing focus on Hydrogen based energy development we shall see good traction in CPS business Increasing Environmental focus shall abode well for ZLDS business. Following the strong Q2FY22 performance and sustained momentum in Q3FY22, Praj is expected to report 38- 54% Revenue/Earnings CAGR until FY24E," said Axis Securities.

The brokerage hs further claimed that "Praj is witnessing strong growth in its key segment Bio Energy in Domestic business, the overall demand-supply gap of Ethanol, increased interest in grain-based distilleries and decarbonization impetus is auguring well for Praj along with development in other key verticals such as CPS, ZLD gaining traction. Praj is a key beneficiary of multiple tailwinds provided by the bioeconomic revolution, giving strong growth & revenue visibility in coming quarters."

Disclaimer

The stock has been picked from the brokerage report of Axis 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.