This Small Cap Engineering Stock Gets Buy Call For 24% Gains, Given 714.09% Returns In 5 Years

Anand Rathi in its recent report on GMM Pfaudler Ltd has given a buy call to the stock of the company for a target price of Rs 1929 apiece. The brokerage sees potential gains of 24% if the stocks of the company are bought at the current market price of the company. GMM Pfaudler Ltd is a small cap engineering company. The company has delivered multibagger returns in long-term investment.

Stock outlook & Returns

The stock's current market price is Rs 1566.60 apiece, yesterday's last traded price. Its share price moved down by -2.05% from its previous close of Rs 1,599.40. Currently, it is trading below Rs 309.93 from its 52-week low and Rs 198.4 below its 52-week high, respectively. The 52 week low was recorded in June 2022 at Rs 1256.67 apiece and the 52 week high was in January at Rs 1765 apiece.

The share in the past 1 week gained 9.63% and In the past 1 month, it gained 8.57%, respectively. Whereas in the past 1 year the share gained roughly 2.23%. However, in 3 and 5 years, the stocks outperformed and delivered multibagger returns of 291.94% and 714.09%, respectively.

The stock's PE ratio is 18.04 and the P/B ratio is 3.50, respectively. TTM EPS is Rs 86.86. Its ROE is 16.13%. Its dividend yield is 0.38% and the face value is Rs 2. It has a market capitalisation of Rs 2,289.98 crore.

Robust Q1 FY23 performance

Q1 FY23 consolidated revenue was Rs7.4bn (up ~34% y/y); standalone revenue, Rs2.5bn (up ~45% y/y). Domestic and export revenue grew 40% and 31% y/y. The standalone EBITDA margin was 16.3% (25.5% a year ago, hit by higher commodity prices. The consolidated margin (13.2%) rose q/q, and would sustain at similar levels through FY23. "Accordingly, we have adjusted margin estimates. We expect ~20% revenue CAGR over FY22- 24, led by the strong OB and robust demand outlook," the brokerage said.

Efforts toward gaining share

Acquisitions is last two-year have made GMM a stronger global player with efforts in cross-selling and enhanced capabilities. Levering this should help it capture greater wallet share of customers and add others. Further, the value-sourcing from India enables it to gain customers due to cost competitiveness. With this, the overall market has expanded and GMM's enhanced abilities support it in catering to this demand.

Valuations- Buy For Target Price of Rs 1929 Apiece

According to the brokerage firm, "Led by its domestic and international businesses, we expect ~20% revenue CAGR over FY22-24. We expect margins of 13.1%/14% in FY23/ FY24, with potential benefits from reduced commodity prices and any breather in energy prices critical to the manufacturing processes. At the CMP, the stock trades at 39x/31x FY23e/FY24e EPS."

Further, the brokerage said, "Strong execution and sturdy demand at its businesses and regions enabled GMM Pfaudler to post ~34%/~24% y/y growth in consolidated revenue/ orders in Q1. Its German and Chinese plants have been ramping up well, bringing better operational efficiencies at its international business. High commodity and energy prices, however, partially curbed margins to 13.2%. Though improving q/q, the EBITDA margin should hold at the similar level, with upward potential if energy costs abate. Successful integration of its international business, cross-selling efforts, value-sourcing and a strong demand outlook keep us upbeat on GMM's business momentum. We retain our Buy rating, with a revised TP of Rs1,929 (37x FY24e EPS)."

According to the brokerage, the key risk is Less-than-expected demand.

About - GMM Pfaudler Limited

GMM Pfaudler is a market leader in the glass-lined equipment market in India. Apart from supplying engineered equipment and systems for critical applications, GMM Pfaudler also offers process solutions with in house application engineering and technical support services. A truly world class organization, GMM Pfaudler is an ISO 9001 company and holds various accredations.

GMM Pfaudler has a state-of-the-art factory at Karamsad, Gujarat, 450 kilometres north of Mumbai and the fabrication facility has a covered area of over 48,700 square meters with dedicated bays for Carbon Steel and Alloy Steel fabrication. In 2008, GMM Pfaudler acquired Mavag AG, Switzerland which supplies highly engineered equipment to pharmaceutical and biotech industries.

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 taking any investment decision.