Stock To Buy: This Small Cap Kirloskar Group Stock Gave 34.65% In A Month, Buy For 24% Gains

Anand Rathi, a leading brokerage firm, is bullish on Kirloskar Oil Engines Limited (KOEL), a Kirloskar Group company. The brokerage in the report recommended investors 'buy' the stock of the company for a target price of Rs 279 apiece. According to the brokerage's estimated target price, investors buying the stock of the company at the current market price could expect a potential gain of 24%. KOEL is a small-cap Engineering-Diesel Engines Sector company having a market capitalization of Rs 3,259.63 crore.

Stock Outlook

The current market price of the stock is Rs 225.40 apiece. The 52-week low of the stock is Rs 122.55 apiece recorded on 7 March 2022 and the 52-week high is Rs 239 apiece recorded on 19 October 2021, respectively.

Returns on Investment

The stock of the company surged roughly 2.29% over the past 1 week. The stock has given 34.65% of positive return in the past 1 month. Whereas, in the past 3 months, the stock has given 42.21% of positive return. Over the past 1 year, the stock has given 6.8%. The stock has given 34.69% in the past 3 years. In the past 5 years, it has given a negative return of 39.84%.

Strong all-round performance

Strong demand for low and medium horsepower products drove power-generation revenue 64% y/y. Industrials revenue grew 45% y/y with volumes growing 12% y/y, driven by construction and earth-moving equipment, fire-fighting pumps, etc., that delivered 62% y/y growth. Exports jumped 63% y/y mainly led by robust demand from GCC and Africa.

New management, vision

KOEL has been in a transformative phase, at the top-level management: with Ms Gauri Kirloskar appointed as managing director, and Aseem Srivastava as CEO-B2C. He aims to strengthen reach (deepening and widening) and profitability (with right price and product) in water-management solutions and farm-mechanisation. Rahul Sahai will join in Sep'22 as CEO-B2B. The appointment of a CFO is in process.

Valuation

The stock has been under pressure due to the top-level management transition. However, things are stabilising with the appointment of the MD, CEO-B2B and CEO-B2C. Moreover, domestic and export demand is healthy, for which a plan is in place. "On this, we believe the stock is attractive at 14x/11x FY23e/FY24e EPS. We expect 16%/33% revenue/PAT CAGRs over FY22-24," the brokerage said.

According to the brokerage the key risk would be Less demand than expected; negative margin surprise.

Strong start to FY23, outlook positive; maintaining a Buy

KOEL made a good start to FY23. Q1 consolidated revenue/PAT grew ~45%/~154% y/y with a 14.5% EBITDA margin. "With government focus on infrastructure and Atma Nirbhar, and strong end-user demand pick-up, we expect better growth in the medium to longer term. Further, its efforts regarding exports (aiming at 15-18% growth) and better B2C margins (higher demand and prices) would prove to be the additional kicker. Hence, strong demand across segments, a sharper focus on exports and efforts to enhance its presence augurs well for the company in coming years. The new leadership (MD, CEO-B2B, CEO-B2C) would bring a fresh vision and focus. We have a Buy rating on the stock, with a Target Price of Rs279 (13x FY24e EPS)," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective 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 making any investment decision.