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Buy This Multibagger Industrial Stock For A Target Price of Rs. 438: Arihant Capital
Pitti Engineering Ltd (PEL) is a small-cap company in the industrial consumables segment with a market cap of Rs 974 crore. The company, which is based in Hyderabad, Telangana, manufactures electrical steel laminations, motor cores, sub-assemblies, die-cast rotors, press tools, and metal component machining. On the NSE, the company's shares have risen from Rs 64.20 on April 29, 2021 to Rs 304 as of April 29, 2022, 11:25 IST, representing a multibagger return of 373.52 per cent in a year. Year-to-date (YTD), the stock has gained 23.45 per cent, and in the previous six months, it has climbed by 79.30 per cent. However, in the previous month, the stock dropped -6.29 per cent, and in the last five trading days, it has fallen -2.56 per cent. Arihant Capital Markets Ltd, a brokerage company, has placed a buy call on the stock with a target price of Rs 438.
Investment rationale for Pitti Engineering Ltd (PEL)
As per the brokerage "In Q3FY22, domestic and export mix were at 66% and 34% respectively. We believe as per discussion with management the revenue visibility of INR 1,700 to INR 1,800cr topline over the medium term. We believe the company would take advantage of strong domestic demand and increase the domestic revenue share to 80% and maintain the exports revenue share to 20% going forward. The company focuses on domestic business which leads to better realization as compared to exports. The concentration on domestic business would reduce the working capital cycle going forward."
"PEL's current capacity is 41,000 metric tonnes per annum (MTPA) and utilization rate of 83.9% as on Q3FY22. PEL is in progress with a capex of INR 270cr in Aurangabad plant which will be expected to complete by end of FY24E. After the capex, the installed capacity will be around 72,000 MTPA and estimated to utilize capacity which is around 57,600 MTPA with utilization rate of 80%. The increase in capacity addition will lead to a better position to serve industry demands which drives business growth for the company," the brokerage has said.
"In FY17, Blended sales and EBITDA per tonne realization were INR 1,65,896 and INR 17,861 respectively. In the last 5 years, PEL has added assembled and value added products which had resulted in change in product mix. In FY21, Blended sales and EBITDA per tonne realization were at INR 2,43,524 and INR 36,197 respectively. In Q3FY22, the realization had further improved; Blended sales and EBITDA per tonne realization were at INR 3,10,036 and INR 40,126 respectively. We believe EBITDA per tonne will improve further to INR 42,000 to INR 44,000 going forward," highlighted Arihant Capital.
"In 30 years of journey, PEL has developed more than 5,000 different products to its clients. The new entrants need to develop all the 5,000 products to compete with Pitti Engineering Ltd which takes more time. PEL has 5,000 products and every year, gradually adding products in products library as per the customer requirements," the brokerage has claimed.
Buy for a target price of INR 438
Arihant Capital has said that "PEL has focused on capacity expansion, order execution and getting new orders from customers. The company have integrated manufacturing plants with cutting edge technology, differentiated product offering, marquee clients, global supply chain, diversified end industries with higher demand would lead the growth going forward. We have used a DCF Model to value Pitti Engineering Ltd, it has healthy and consistent cash flow generation over the forecasted period. We have discounted the cash flows using WACC and value the company at INR 438 per share. We initiate coverage with a "BUY" rating at a Target Price of INR 438 per share; an upside of 42.6%."
Disclaimer
The stock has been picked from the brokerage report of Arihant Capital Markets Ltd. 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.
