Buy This Multibagger Automobile Stock For A Target Price of Rs 623: HDFC Securities

With a market capitalization of Rs 643 crore, Talbros Automotive Components Ltd. (TACL) is a small-cap company in the auto ancillaries category. Talbros is a multi-category automobile part manufacturer with a diverse product range that includes Gaskets, Heat Shields, Forgings, Chassis and Suspension Systems, Anti-vibration Components, and Hoses. Talbros Automotive Components shares have risen by roughly 147 percent in the last year, from around Rs 209 to Rs 518 per share. The brokerage firm HDFC Securities anticipates more upside in the stock from its present market price of Rs 518 and has given it a buy call rating with a target price of Rs 623 in two quarters.

Q3FY22 Result

As per the brokerage "TACL reported Q3FY22 revenues of Rs 148cr, up 14.5% YoY led by strong growth in the domestic Gaskets business. Gasket revenue grew 21% YoY to Rs 101cr. Forging business de-grew marginally to Rs 49cr because of the chip shortage and closure of all the export facilities in the month of Dec'21. Gasket JV with Nippon Leakless reported 23% de-growth in revenue on account of decline in demand from Hero and Honda. Marelli Talbros (chassis) Talbros Marugo witnessed muted growth of 3.6% and 2.4% YoY respectively to Rs 78 and Rs 27cr."

"EBITDA was flat at Rs 19cr. However, EBITDA margin declined 173bps to 12.6% on account of raw material inflation (mainly in forgings) and hike in salaries. Most of the increase in steel prices have been passed on to the customers which is likely to reflect in Q4FY22. PAT came in at Rs 11cr, a growth of 6% YoY while PAT margin contracted 60bps to 7.5%. Gross debt at the end of Q3FY22 including working capital stood at Rs 97cr," said HDFC Securities.

Buy for a target price of Rs 623

The brokerage has said "India's domestic automobile demand is expected to revive driving strong growth for the company. The Government is also looking to promote manufacturing of auto components in India by offering various incentives. TACL has established relationships with globally reputed companies. These associations have helped the Talbros group, to develop strong innovative technologies, resulting in 250 products launched each year. The economic growth in India also remains strong and is expected to grow at 8-8.5% in FY23 according to the Economic Survey."

"Diversified nature of the company's products enables it to withstand slowdown pressures. With moderate capex requirement and increased utilisation going forward, we expect return ratios to improve. The easing of chip shortage is likely to drive higher exports in the coming years. We expect TACL's Revenue/EBITDA/PAT to grow at 17/19/18% CAGR over FY21-FY24E, led by increased demand from automotive as well as industrial segments. We believe investors can buy the stock in Rs 505-515 band and add on dips to Rs 435-445 band (8.5x FY24E EPS) for a base case fair value of Rs 571 (11x FY24E EPS) and bull case fair value of Rs 623 (12x FY24E EPS) over the next 2 quarters," HDFC Securities has claimed.

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.