2 Smallcap Stocks To Buy After A Sharp Fall In Their Prices For Potential Gains Of 50%

Kewal Kiran Clothing

Anand Rathi believes that the stock of Kewal Kiran Clothing can gain nearly 50% from levels of Rs 208 to around Rs 303. The company is a leading player in Apparel and denim wear with brands like Killer, Easies, LawmanPg3, Integriti and Desibelle are iconic apparel brands in India.

Kewal Kiran ended FY22 with 15%/12% higher revenue/PAT than pre-Covid'19 (FY20). Revenue growth was driven by 28% volume growth over FY20. Q4 FY22 revenue/EBITDA grew 53%/3x y/y, ahead of our estimates. With recovery setting in and revenue crossing pre-Covid levels, liquidity (cash & investments) is a comfortable Rs 3,154 million. "We raise our FY23e/FY24e revenue 2% each. We expect revenue/EBITDA/EPS CAGRs of 14%/16%/11% over FY22-24," Anand Rathi has said.

Kewal Kiran Clothing: Better working capital, strong liquidity position

Better working capital, strong liquidity position maintained. Working capital days (on sales) were lower y/y at 138 (vs. 164 a year back) led by lower debtor days (down 55 y/y to 103). "Inventory days were 7 more y/y at 68 and payable days were lower at 32 vs. 55 a year back. OCF declined 40% y/y to Rs569m despite better profitability, led by higher working capital (inventory) and FCF was 49% lower y/y to Rs 477 million led by lower OCF and higher capex (up 3x y/y. The company maintained its strong liquidity position with Rs3,154m in cash and cash equivalents at end-FY22. Its EBO count was 356 at end-FY22 vs. 322 a year earlier," Anand Rathi has said.

"We maintain our Buy on the stock, with a target price of Rs 303 at 12x FY24e EV/EBITD," Anand Rathi has said. According to them the key risks for the stock would be keener competition, trimming volume and realisation growth.

Craftsmen Automation

Anand Rathi has set a price target of Rs 3275 on the stock of Craftsmen Automation against the current market price of Rs 2175. The firm says that despite the challenging business environment, Craftsman Automation continued to increase value addition across segments. Orders won were robust in the quarter.

"We continue to expect strong recovery in CVs, led by M&HCV and off-highway sub-segments as economic activity strongly picks up in subsequent quarters. Similarly for PVs and 2Ws, we expect growth to come by, on a low base. We maintain a Buy at a revised target price of Rs 3,261 (19 times FY24e)," Anand Rathi has said.

Craftsmen Automation: Robust order book

According to the firm, robust order book is likely to be executed in the next two years. In the year, the company secured power-train orders from an American and a European OEM and expects to commence production in the following quarters, along with diesel engine manufacturing in the aluminium business. Its storage solutions pending order-book is Rs1.5 billion and revenues are expected from FY23 across segments. This augurs well for overall growth.

"We continue to expect strong volume growth in M&HCVs, off-highway and PVs, while the semi-conductor shortage and tepid demand would continue to impact 2W off-take. Accordingly, we expect 23% growth in FY23 and 10% in FY24. In the quarter, value additions in power-train were Rs2.1bn (Rs2.01bn last year), in Auto Aluminium Rs365m (Rs267mn) and in Industrial Engineering Rs970m (Rs620m). The Q4 FY22 EBITDA margin expanded 48bps to 23.5% despite high RM prices in the industry as the company passed on the increases across segments without any lag. We expect the operating leverage-led margin-expansion in subsequent quarters due to better capacity utilisation and off-take across the automobile industry. Hence, we expect margins of 25.5% in FY23 and 26% in FY24," the firm has said.

"We expect a 17% revenue CAGR over FY22-24; and 50% earnings growth, leading to an EPS of Rs 171.6. We maintain a Buy rating, with a revised target price of Rs .3,261 (19x FY24e)," the firm has said.