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Buy This Multibagger Small-Cap Industrial Equipment Stock For Rs 3,384 Target Price

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Edelweiss Market Research is bullish on Kennametal India Ltd., a small cap Industrial Equipment manufacturer company. The Brokerage has given a Tactical "buy" call to the stock for a target price of Rs 3,384. The brokerage claims a potential gain of 24%.

 

Kennametal India is a Bengaluru-based manufacturer of hard metal products and machine tools. It is a play on manufacturing industries capex across various sectors, especially in automobiles, infrastructure, semi conductors, mining, aerospace, and machinery manufacturers. Kennametal India is a 75% subsidiary of Kennametal Inc. USA, which is a leading global company in developing and manufacturing sophisticated hard material cutting and wear protection solutions.

Stock Outlook

Stock Outlook

The current market price of the stock is Rs 2,733 apiece on NSE. The 52-week low of the stock is Rs 1,321.90 apiece and 52 week high is Rs 2,890 apiece, respectively. It has a market cap of Rs 6,006.65 crore.

Returns over the past 5 years

Returns over the past 5 years

The share price of the stock in the past one week has surged by 5.2%, whereas, in the past 1 month, gained around 21.81%. However, in the last 3 months, the stock has given 54.09%. Whereas, in the last 1 year, it gave multibagge return 159.46%. In the past 5 year, 5 years it has given a multibagger return 344.57%.

A play on manufacturing activities; rising proportion of GDP
 

A play on manufacturing activities; rising proportion of GDP

Manufacturing sector's share in the Indian economy has reached to pre-covid level of ~18% of GVA in FY22 and we believe it is poised for an uptick led by signs of capex cycle recovery, which includes the real estate cycle, government policy initiatives such as the PLI schemes, continued FDI inflows, China+1 strategy and an urgency to become self-sufficient in term of energy and manufacturing sector due to recent geopolitical events. Kennametal India is a play on the manufacturing activity in India, rising capacity utilisation across industries mainly automobiles and improving industrial capex cycle. Kennametal India has been a beneficiary to this momentum with an improved order book from these sectors for its all-business segments.

 Beneficiary of revival in Automobile sector

Beneficiary of revival in Automobile sector

Kennametal India is one of the major beneficiaries of impending revival in Automobile sector as it is one of the biggest consumers of its hard metal products. Till FY13, Kennametal India's dependency on Transportation sector was highest at ~70% however over the years Kennametal India diversified into Infrastructure space and improved Machining Solutions business. Auto sector is witnessing revival in volumes post two years of interruption led by Covid-19 pandemic, growing domestic economy and rising aspirations of 1.4 billion led relatively young country. We expect Kennametal India to witness strong revenue growth led by this revival.

Falling RM prices to improve margins

Falling RM prices to improve margins

The major raw material for production of hard metals being Tungsten Carbide and Cobalt; which is imported by Kennametal India. Global market size of tungsten carbide is growing steady 4% CAGR over decades. Prices have fallen from RMB 275/kg to RMB 250 /kg since March 2022 and again started inching back. Cobalt prices (10-15% wt) have fallen significantly from recent highs of USD82k/t in March 2022 to USD50k/t in August which will improve margins.

Initiate with tactical BUY, potential upside of 25%

Initiate with tactical BUY, potential upside of 25%

Kennametal India offers strong growth visibility with strong balance sheet and parentage. Kennametal India continues its endeavour to develop and indigenize products and processes with specific focus on materials, processes, coatings and machining technology in collaboration with its parent. "We expect a CAGR of 18% and 23% in revenue and EPS, respectively, over FY22-25E. This will be accompanied by ROCE improvement from 18%c. to 25% by FY24E. We assign a Target Price of INR 3,384/share, valuing the company at 35x FY24E PE," the brokerage has said..

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Market Research. 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 making any investment decision.

Story first published: Thursday, September 22, 2022, 22:22 [IST]
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