Buy This Multibagger Small-Cap Auto Ancillary Stock For Sharp 16% Gains, Gave 206.27% In 3 Years

A renowned brokerage firm AUM Capital in its recently published report has rated GNA Axles Limited buy for a target price of Rs 810 apiece. Considering the estimated target price by the brokerage, the stock has the potential to give a sharp 16% gain. GNA Axles is a small-cap Auto Ancillary sector company having a market capitalization of Rs 1,500.54 crore.

Stock Outlook

The Current Market Price (CMP) of GNA Axles on NSE is Rs 699.05 apiece. The 52-week low is Rs 440.05 apiece recorded on 24 February 2022, and the 52-week high is Rs 1,111.55 apiece, recorded on 14 October 2021.

Returns on Investments

Stock in the past 1 week moved up by 3.99% and in the past 1 month moved up by 19.24%, respectively. Over the last 3 months, it has given a positive return of 35.55%. Over the past 1 year, it has given roughly 4.56%. However, in the past 3 years, it has given a multibagger return of 206.27%. Whereas, in the past 5 years, it has also given a multibagger return of 172.32%.

Investment Rationale

• GNA Axles has a sizeable presence in both the domestic segment as well as the export markets. It has been supplying domestic customers since 1995 and overseas ones since 2002. With the domestic rear axle market expected to grow at a CAGR of 14%- 15% in the next five years along with new opportunities opening up in the export market for low-cost countries like India, GNA Axles is expected to benefit from this growth both domestically as well as internationally.
• GNA Axles has a diverse product portfolio, thus insulating it to a degree against fluctuation in demand for a specific product. A strong R&D and in-house engineering department have enabled it to continuously innovate and develop new products from time to time.
• GNA Axles's foray into the SUV segment is expected to be an incremental growth driver going forward where it would supply SUV axle shafts to its existing CV customers (in export markets) who are already in the SUV business.
• An integrated manufacturing set up from forging to finished goods has enabled GNA Axles to reap the benefits of economies of scale along with its ability to manufacture customized products to meet various customer needs.
• GNA Axles has strategically located its manufacturing facilities where it has a large client base, thus benefitting from lower transportation and logistics costs as well as reaching the customer in the least possible time.
• A good monsoon raises the demand for tractors. In the domestic market, tractor demand has recovered strongly with double-digit growth reported from FY21 onwards. This year monsoon has been in line with expectations in central and north Indian provinces which should keep tractor demand buoyant.
• GNA maintains a stable leverage, liquidity and return ratio. As at the end of March 2022, the Debt to Equity Ratio stood at 0.35x, Current Ratio at 1.79x, ROCE at 20.53% and ROE at 14.96%.
• GNA reported a 14% YoY growth in sales in Q1FY23. The management has stated that the export order book for Class 5 trucks in USA and other heavy vehicles segment in Europe remains strong and is does not expect any risk of any potential economic downturn in these two regions.

 

Recommendation

A strong export order book from the western world coupled with the increase in production volumes of major HCV and MCHV manufacturers in the domestic market looks encouraging for GNA Axles. Strategic diversification in the SUV segment would further cement its position as one of the top players. "At the CMP of 645.40, the stock trades at 12x FY23E EPS of Rs 54. Hence, we recommend a buy with a target price of Rs 810 with an upside potential of 26% in the next 9- 12 months," the brokerage has said.

 

About - GNA Axles Ltd

GNA Axles Ltd (GNA) is one of the leading manufacturers of rear axle shafts used in on-highway and off-highway vehicular segments in India. It has a portfolio of a large variety of axle shafts ranging from 1.5kg to 65kg and the capacity to produce up to 165kg, producing about 2 million axle shafts annually. Rear-axle shafts account for 83% of revenue, while spindles and drive shafts account for 12% and 5% of revenue, respectively. The company primarily caters to the requirements of CVs and tractor segments in the domestic and export markets.

 

Disclaimer

The stock has been picked from the brokerage report of AUM Capital. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.