Buy This Multibagger Chemicals Stock For Over 17% Upside In 2 Quarters: HDFC Securities

Indian markets have been consolidating and in trade on April 22, 2022 are reacting to the Fed's Powell comments of aggressive rate hike. The move has led Nifty to drop to 17211, with a cut of over 1%.In the previous session, Nifty clinched levels of close to 17400.

Nevertheless, as stock specific action is to be seen given the earnings season, HDFC Securities in its coverage has suggested to buy the stock of Premier Explosives for over 17% gains in 2 quarters.

Buy Premier Explosives for over 17% upside or target price of Rs. 452 for 2 quarters

About PEL

The company is into the manufacture of high energy materials and allied products for the defence, space, mining and infrastructure industries. It has three business divisions: explosives (catering to mining and infra), defence and service (undertakes operations and maintenance services for government owned solid propellant plants). The company is into the business for over 4 decades with strong associations across segments. The company has
healthy order book of Rs.401.1 Cr as of Q3FY22 which provides revenue visibility of next 2-3 years.Also, the company's move as well as the government's initiatives in the defence segment may offer strength to the company.

Key risk to know before taking positions in the stock

"Rising raw material prices, stretched working capital cycle and high concentration of clients are the key risks for the business. The stock is under the price circuit limit of 5% as it is in Trade to Trade group. This necessitates the presence of high-risk appetite for taking buy positions in the stock", claims the report.

Valuation & Recommendation:

"We feel that the PEL is the case of turn around in a happening sector. After five consecutive quarters of losses, the company has again turned into profit from Mar-21. The management has changed focused towards high margin defence business and has reduced exposure in the bulk explosives where the rising raw material cost was difficult to pass on. Being a turnaround case, the valuation of the company could remain expensive. The management has given revenue growth guidance of 20-25% for FY23. We expect the company to deliver 24% CAGR revenue from FY21-24E. Further, we have estimated net profit in FY24E would be around Rs.19.3 Cr compared to Rs.10.9 Cr of loss
in FY21. We feel that investors can BUY Premier Explosives Ltd between Rs.370-380 band (22xFY24E EPS) and add further on dips to Rs.333 band (19.5xFY24E EPS) for the Base case target of Rs.418 (24.5xFY24E EPS) and Bull Case target of Rs.452 (26.5xFY24E EPS) over period of six months", adds the report.

Key rationales for a buy on the stock:

1. Leading manufacturer of high energy materially

2. The company's shift to high margin defence segments

3. Also a strong order book provides for earnings visibility of 3-4 years.

Disclaimer:

The stock recommendation is taken from the brokerage report of HDFC Securities and the story should not be taken as an investment advice into the scrip. Market related investments call for own due diligence.