ICICI Direct Suggest To Buy This Auto Ancillary Stock For 23% Gains In A Year

Indian indices after gaining support from the global market made remarkable recovery with Sensex climbing 767 odd points, while Nifty reclaimed 18,100 levels. Here is an auto ancillary pick by ICICI Direct for good gains in a year's time.

Balkrishna Industries:

ICICI Direct has put its bet on this tyre and tubes company- Balkrishna Industries and has set a target of Rs. 2900 to be realized in 1-year. The stock last closed at a price of Rs. 2361.75, which means an upside of close to 23 percent.

About the stock: The company is a leading player in the niche tyre industry that find application in heavy machinery for agriculture as well as mining areas. The company draws major portion of its revenue i.e. as much as 80 percent from exports.

Talking about the different channels, replacement shall account for 70 percent while OEM share is at 26 percent. Agriculture accounts for 64% of volumes. Further the company has been a consistent performer with an over 20 percent margins and return ratios.

Q2Fy22 earnings of Balkrishna Industries

Net sales for the September ended quarter was at Rs. 2050 crore, up 13.1 per cent sequentially. EBIDTA margin declined. PAT grew 14 percent to Rs. 377 crore owing to higher additional income.

Advice on Balkrishna Industries stock by ICICI Direct

The company over the 5-year period has outperformed Nifty Auto index. "We retain BUY on Balkrishna amid robust demand prospects, healthy financials and
value the scrip at revised target price of Rs. 2,900 i.e. 32x
P/E on FY23-24E average EPS of Rs. 90.6 (earlier target price Rs. 2,825).

Key triggers for future price performance:

-The company's aggressive plans to double its market share to 10 percent.
- There is seen robust demand across segments including agriculture, OTR for propelling volume growth.
- There is in place backward integration as well as aggressive brownfield expansion.
-Net debt free b/s, double-digit return ratios & strong cash generation
-Sales, PAT growth seen at a CAGR of 21.9%, 17.1% over FY21-24E

Alternate Stock Idea: The company in the auto ancillary space likes JK Tyre.
• Walking the talk on b/s deleveraging, sweating of assets & capital efficiency
• BUY with a target price of | 185
GoodReturns.in

Disclaimer:

This stock is picked from the brokerage report of ICICI Direct. 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.