Broking firm, Sharekhan has suggested buying the stocks of Finolex Cables and Suprajit Engineering for the long term. The brokerage expects good gains in both the stocks for those looking to buy.
Buy Finolex Cables
|Current market price||Rs 475|
|Target price Rs||Rs 623|
Sharekhan sees an upside of 31% on the stock of Finolex Cables and has recommended a buy on the stock. The company reported Q1FY2022 numbers above our estimates with revenue/ EBITDA/PAT at Rs 675 crore, Rs. 70 crore and Rs. 55 crore. There was strong growth in all areas due to favourable base and strong performance in electrical cables and communication cables segment.
According to Sharekhan, the company's healthy operating cash flow generation, tight working capital management (policy of advance payments from dealers), and limited capex are expected to further build upon its cash reserves.
Within the communication cables segment, volume of metal-based products improved by 71% during the quarter. Optic fiber cable volumes grew by over 290% during the quarter. Currently, there are 300 distributors (248 distributors in FY2020), but management targets to reach 500 distributors over a period of time.
"We expect strong performance in FY2022 as the cables segment saw infrastructure investments and scaling up of its FMEG business with improving demand and strong dealer network. We retain our Buy rating on Finolex Cables with an unchanged target price of Rs. 623, considering improvement in distribution efforts, which has led to pick up in volumes," the brokerage has said.
|Current market price||Rs 349|
|Target price Rs||Rs 401|
According to Sharekhan, among global peers, the company benefits from its locational cost advantage.
The management of the company was cautiously optimistic about the recovery in medium term, though the management cautioned near term challenges of COVID pandemic in India and chips supply shortage globally.
According to Sharekhan, Suprajit continues to strengthen its value proposition to its domestic and global clients, aided by a leadership position in the domestic cable business and locational advantage to its global peers. Key drivers for Suprajit's success according to Sharekhan are its ability to produce low cost cables among domestic players, aided by its operational efficiency and dedicated plants for respective clients.
"The company has a strong foothold in the cable business in the automotive segment, where it holds a 30-35% market share. The company has a dominant 60-65% market share in the two-wheelers (2W) cable business. We expect Suprajit to benefit from strong demand witnessed in the domestic as well as export markets," the brokerage has said.
"The company will also benefit from its capex plans, which will help it to capitalise further in the next peak season. We remain positive on Suprajit's growth prospects and thus, retain a Buy rating on the stock," the brokerage has said.
The article is informational in nature, which is taken from the brokerage report of Sharekhan. Please do consult a professional advisor before buying into any of these stocks. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in the article.