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Sharekhan Suggests: Buy This Stock For 25% Return, Revenue Grew 52%, Capacity Expansion, Volume Growth Planned
Brokerage firm Sharekhan suggests buying the stocks of Hitech Pipes Ltd., for good returns in the short term. The company has reported a strong beat on consolidated revenues that increased by 52% YoY to Rs. 595 crore, led by both volume growth (up 26% YoY at 0.85 lakh tones) and higher realizations (up 21% YoY at Rs. 69,941/tonne).
Target Price, CMP, and performance
The Current Market Price (CMP) of Hitech Pipes Ltd. is Rs. 553. Sharekhan has estimated a Target Price for the stock at Rs. 691. Stock is anticipated to give a 25% return, in 1 year.
| Stock Outlook | |
|---|---|
| Current Market Price (CMP) | Rs. 553 |
| Target Price | Rs. 691 |
| 1 year return | 25.00% |
Hitech Pipes Limited (Hitech)'s consolidated revenues strongly beat estimates in Q4FY2022 although EBITDA/tonne slightly lagged estimates. Net earnings stood in-line due to higher interest costs and effective tax rate. The management expects minimum 20-25% volume growth for FY2023 with EBITDA/tonne slated to increase by Rs. 200/tonne every year. Capacity expansions in large diameter pipes and color-coated roofing sheets to increase the share of value-added products leading to an overall improvement in operational profitability. Share of value-added products increased to 27% from 25% in Q3FY2022.
The consolidated operating profit grew 55% YoY to Rs. 30 crore, and the consolidated net profit at Rs. 11.2 crore (up 72% YoY) was in-line with the expectation on account of higher interest expense (up 40% YoY) and higher effective tax rate (28.9% vs 24% in Q4FY2021).
Sharekhan shares advantages and disadvantages
Retaining the buy rating Sharekhan stated the advantages of the stock, "Hitech is expected to focus on increasing its capacity utilisation and increasing value added product share leading to overall improvement in operational profitability going ahead. The company has strong demand growth drivers such as low per capita domestic steel pipes consumption, infrastructure investments over next five years, and government schemes like Jal Jeevan Mission among others. As it reaches optimum capacity utilization, it would be undertaking major capex plan to achieve a 1 MTPA capacity which would provide next leg of growth. At CMP, the stock is currently trading at a P/E of 8x its FY2024E EPS, at a discount to its peers. We expect the valuation multiple gap vis-à-vis peers to narrow down as Hitech ramps ups net earnings driven by healthy topline growth and strong operational profitability."
On the other hand, mentioning the key negatives and key risks, the firm said, "EBITDA/tonne was a tad below the estimate at Rs. 3511/tonne versus our expectation of Rs. 3656/tonne. Interest expenses increased by 40% y-o-y to Rs. 12.3 crore. Downward pressure on steel prices and a drop in government and private capex. Risk of substitute products cornering a higher share of the demand pie."
About the company: Hitech Pipes Ltd.
Hitech Pipes Ltd. is a leading Indian manufacturer of steel products. Their range of superior quality products includes Flat Steel, Tubular Steel Products, Engineering Steel Products and numerous other galvanised steel products. They have 580000 MTPA installed capacity. With 37 years of experience they have and 5 manufacturing plants. Hitech has a wide network of 390 dealers and 590up SKUs with presence across 17 Indian states. Additionally, the Company also has tie-up with more than 150 OEM partners and more than 90 contractors across the country. The company's clientele includes Reliance Industries Limited, TATA, Adani and Airtel, IPH, Shimla, AAI among others
The trial production of 60,000 TPA large diameter pipes at Sanand would start in Q3FY2023. The trial production of 50,000 TPA of colour-coated roofing sheets would start in Q2FY2023. It has started the production of solar torque tubes. Value-added products share to rise to 30-35%/35-40% in FY2023 and FY2024 from 25% during FY2022. The share of its value added products (VAP) increased to 25% in FY2022 from 15-17% earlier. It targets 35-40% VAP share in FY2023 and FY2024, and the eventual target is reaching 50% VAP share.
Disclaimer
The above stock was picked from the brokerage report of Sharekhan. 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.
