IDBI Capital has suggested to the buy the stock of Rail Vikas Nigam (RVNL) and Amara Raja Batteries for a decent gain of 35%. The brokerage has set a target price of Rs 52 for Rail Vikas Nigam (RVNL) stock and Rs 940 for Amara Raja Batteries stock. Both stocks have a potential upside of 35% from their current market price, according to the brokerage.
Q2FY22 results of Rail Vikas Nigam (RVNL)
According to the brokerage "RVNL Q2FY22, PAT came in line with our estimate. PAT (up 49% YoY) is led by execution (revenue up 26% YoY) and improved performance from SPV which has benefited from an increase in the cargo movement. In Q2FY22, RVNL has received an order inflow of Rs15bn. Orders are won on competitive bidding which has a higher EBITDA margin. Post the result we have increased revenue by 4%/8% for FY22E/23E and PAT by 12%/15%."
Key highlights and investment rationale for Rail Vikas Nigam (RVNL) according to IDBI Capital
Q2FY22 Snapshot: Led by improved execution, RVNL Q2FY22 revenue increased by 26% YoY to Rs40bn. EBITDA margin increased by 40bps YoY at 5.6% vs 5.2% YoY. Margin improvement is driven by operating leverage. Profit from Associates has increased by 278% at Rs568mn, this is led by improvement in cargo movement at SPVs particularly Kutch SPV. Q2FY22 PAT at Rs2.8bn (+49% YoY / +20% QoQ).
Order inflow at the higher margin: RVNL has won orders of Rs15bn on competitive bidding in Q2FY22. We understand this is positive as lack of order inflow was one of the concerns for future growth with the company. Order inflow is won at improved margin vs current EBITDA margin at 5-6%. H1FY22 Order book at Rs650bn vs Rs750bn in FY21. RVNL has also commenced bidding for orders in the international market, this could improve order inflow traction for the company.
Introduce FY24E financials: RVNL current order book is at 3.5x FY22E revenue. We expect revenue to increase by 18-19% pa over FY22E-24E. EBITDA margin to improve to 6.1% in FY24E vs 5.7% in FY21. This will result in an EBITDA increase of 21-22% pa over FY22E-24E.
Buy Rail Vikas Nigam (RVNL) with a target price of Rs 52
The brokerage in its research report has said that "We have rolled forward TP (valued at 7x PER) to FY24E and has BUY rating on the stock with an upside of 35%. H1FY22 Order book at Rs650bn provides revenue visibility for the next 3-4 years. RVNL trades at 5x FY24E EPS and offers a dividend yield of 5-7%. Catalyst for the stock is new order win in competitive bidding."
Q2FY22 results of Amara Raja Batteries
According to the research report of IDBI Capital "Amara Raja's Q2FY22 result was a mixed bag as its sales were ahead of our estimate while EBITDA was lower than our forecast. Amara Raja's sales increased by 17% YoY to Rs22 bn as automotive and industrial sales rebounded. However, the sharp increase in prices of raw material (lead) led to a sharp contraction in margins. Its EBITDA declined by 21% YoY to Rs2,689 mn; EBITDA margins fell by 570 bps YoY and 138 bps QoQ to 11.9%. Net profit increased 16% QoQ to Rs1.4 bn due to higher other income (59% QoQ to Rs264 mn)."
Key highlights and investment rationale for Amara Raja Batteries according to the brokerage
Automotive segment strong: During Q2FY22, Automotive revenues growth was led by robust demand from Aftermarket across all product segments. Industrial volume growth was stable across all segments and volume growth was higher in UPS. However, supply chain challenges continue to persist in select export markets and the firm raw material prices will have an adverse impact on margins in the near term.
Recovery likely in H2FY22: While the second wave of Covid-19 has impacted Amara Raja's H1FY21 performance, we expect a strong recovery in battery sales from H2FY22 and expect further improvement in FY23 mainly led by improvement in demand from replacement/exports segments.
Outlook: We expect Amara Raja's sales/EBITDA/net profit to grow at a CAGR of 12%/15%/19%, respectively over FY22-24E. The recent decline in stock price provides an attractive entry point in the stock in our view ad valuation at 13x FY24 EPS remains inexpensive in our view.
Buy Amara Raja Batteries with a target price of Rs 940
IDBI Capital in its research has claimed that "We broadly maintain our FY22/FY23 sales forecasts. However, we lower our FY22-FY23 EBITDA margin estimates by 110-120 bps to account for the higher price of raw materials. We introduce FY24 estimates in the report and expect sales/EBITDA to grow by 12%/13%, respectively. We now value the stock at a PER of 17x FY24E (earlier 20x FY23E) EPS to derive a target price of Rs940 (earlier Rs918)."
The above stocks are picked from the brokerage report of IDBI Capital. 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.