Buy This Petrochemicals Stock For Strong 34% Potential Gains, 48% Rise In Operating Profit

Hem Securities, a well-known brokerage firm, has given a buy rating to the Agarwal Industrial Corporation Ltd. for strong 34% gains. According to the brokerage's given a target price of Rs 705, it has a potential to give strong gains to the investors.

According to the brokerage, since the company has shown strong growth in its volume in the last few years, the company has been able to command a strong market share. The company is a market leader with the single largest market share of approx. 28% in Bitumen.

Stock Overview

Today, Monday, June 6, 2022, Agarwal Industrial Corporation Ltd's stock closed at Rs 528, down 2.07 per cent from the previous day's closing, which was Rs 539.15. As per the estimated target price of Rs 705, and the current market price of Rs 528, the stock could jump 34%. The stock has performed exceptionally in the last 1 year, gaining almost 134%, whereas, in the last 1 month, it has declined nearly 17%. However, in this period, it has also hit the 52 weeks high in April 2022. It has hit the 52-week low at 208.85 and the 52-week high at 730.95.

Robust Financial Performance, shown sharp rise in operating profit

In FY22, Agarwal Industrial Corporation Ltd. has posted strong growth of 77% at Rs 1598.24 cr in its top line as compare to FY21. Company has shown sharp rise of 48% in its operating profit at Rs 105.76 Cr while bottom line of company has risen by 57% at Rs 63.69 Cr during the same year.

Looking after return ratios, in FY22 company's RoE as increased to 21.62% as compare to 20.68% in FY21. ROCE of company has also witnessed rise to 20.36% from 17.92% in FY21. However, the company's debt/ equity ratio has seen decline from 0.66 in FY21 to 0.50 in FY22, thus depicting the strong financial health of company. With the government's focus on infrastructure, company is well set to cater opportunities present in sector.

"As company's growth prospects are solid hence we are expecting company to post in FY23E decent growth of 20% in topline at Rs 1918 Crore & strong growth of 26% in bottom-line at Rs 80 Crore," the brokerage has said.

What makes this stock a good buy? Why should you invest?

Company being an end to end solution provider procure material from the International market & transport it through its own charter & logistics thus providing all services under one roof. Hence company has an edge over its peers as company hold the largest market share & second largest competitor in same field does volume much lower (approx 50-60%) of what company is doing presently. Therefore company benefits from being a fully integrated service provider.

The brokerage has also stated the healthy sectoral outlook aspect in the report. In the report, the brokerage has stated, "In Union budget 2022, the government has set target of constructing 25,000 kms of National Highway in FY23, which is 29% more than what was constructed in the past two fiscals (6,185 kms in the first 9 months of this fiscal and 13,200 kms in fiscal 2021), providing abundant opportunities for growth of the company."

Buy for a target price of Rs 705/share

"As historically Q4 & first two months of Q1 being the peak revenue generators for company, we expect Agarwal Industrial Corporation Ltd. to grow at healthy rate going ahead. The company being market leader in Bitumen with decent 28% market share will be one of the key beneficiary of increasing government focus on infrastructure spending in creating more roads & highways. Hence we are initiating coverage on the stock. Currently stock is trading at 10x of FY23E eps while it is trading reasonably at 8x of FY24E eps. Therefore, we initiate "BUY" on stock with price target of Rs 705/share (13x of FY23E eps & 11x of FY24E eps) depicting healthy upside of 32% from current level," Hem Securities has said in the report.

Agarwal Industrial Corporation Ltd.

Agarwal Industrial Corporation Ltd. is an Integrated Petrochemical Company focussed on Bitumen - a Company that has expanded from its modest origins in Transportation to Manufacturing, LPG and Power Generation Activities. The company functions as an infrastructure ancillary for the transport & logistics segments because of its powerful logistical assets & infrastructure. Agarwal Industrial Corporation owns 6 large marine vessels having a total capacity of 38,000 MT with 650+ Fleet Sizes consisting of 350+ Bitumen Tankers and 300+ LPG Tankers. Company owns 7 bulk storage terminals facilities with a total storage capacity of 30,000 MT having direct access to shipping networks & 6 state-of-the-art manufacturing facilities. 

Disclaimer

The stock has been picked from the brokerage report of Hem Securities. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.