Capital Goods Stock Below Rs 50 Has Huge Potential Upside of 65%: Buy?

In the capital goods industry, Lloyds Engineering Works Ltd. is a small-cap firm. As of Friday's closing session, its market valuation was Rs 4,917.87 Cr. The firm designs and manufactures heavy machinery, equipment, and systems for the oil and gas, steel, power, and nuclear industries, as well as turnkey projects and boilers for steel plants. In 1974, Lloyds Engineering Works Ltd. was founded in Andheri, Mumbai.

It then relocated to Murbad, Thane District, Maharashtra, where it became a heavy fabrication and machine-building company. From the current market price of Rs 43.05., the brokerage firm Ventura Securities expects a possible upside of 64.92% to a target price of Rs 71 in 24 months.

Investment Rationale

"With a resilient INR 921 crore order book, (3X FY23 sales), Lloyds Engineering Works Ltd (LEWL) envisions substantial growth, particularly in Marine and Civil projects, promising heightened revenue and profit margins. Strategically investing in capacity enhancement, LEWL solidifies its financial position as a net cash entity. Poised to thrive in the infrastructure and capex sector, LEWL strategically aligns with the anticipated surge in government spending, demonstrating a keen foresight in capitalizing on opportunities within this burgeoning industry.

Furthermore, through strategic technological collaborations with industry leaders like The Material Works, Ltd. (TMW), Bhabha Atomic Research Centre (BARC), and TB Global Technologies Ltd (TBG), LEWL is poised to innovate and diversify its product portfolio, ensuring a competitive edge in the evolving market landscape. LEWL is set to issue 6.34 crore equity shares, raising INR 99 cr at a price of 15.5 per share. The purpose of this issuance is to secure funds for working capital needs," said the brokerage in a note.

"We expect revenues to grow at a CAGR of 47% to INR 996cr. This stupendous growth in revenue is expected from • Higher order inflow from marine, steel and special civil engineering projects.

• LEWL's Strategic Capacity Boost for Future Revenue Growth

• Strategic positioning in the infrastructure and capex sector, aligning with a government spending surge LEWL's EBITDA and PAT are expected to grow at a CAGR of 59%/66% to INR 209/168 cr respectively. EBITDA and PAT margins are expected to enhance by 430/500 bps to 21%/16.8% respectively. Subsequently ROE and ROCE are expected to enhance by 610/750 bps to 24.9%/22.9% respectively," further added the brokerage.

Lloyds Engineering Works Share Price Target

"We initiate coverage on LEWL at the CMP of INR 44 per share (28.3X FY26 P/E) with a price target of INR 71 (47x FY26 P/E) per share, representing an upside potential of 61.4% in the next 24 months," said the equity research analysts of Ventura Securities.

Lloyds Engineering Works Bull And Bear Case Scenarios

Bull Case: We have assumed revenue of INR 1100 cr (FY23-26 CAGR growth of 52%) and a EBITDA margins of 22% at P/E of 50X, which will result in a Bull Case consolidated price target of INR 82(an upside of 86.4% from CMP), according to the brokerage.

Bear Case: We have assumed revenue of INR 850 cr (FY23-26 CAGR growth of 39.5%) and a EBITDA margins of 20% at P/E of 35X, which will result in a Bear Case consolidated price target of INR 49 (an upside of 11.4% from CMP), as per Ventura Securities.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.