This Small Cap Stock Gave 60.12% Returns In 3 Years, Brokerage Suggests Buy For 30% Gains

Leading brokerage firm Anand Rathi has assigned a buy call on Rupa & Company Ltd. (RUPA) stock, with a target price of ₹375 per share for decent gains of up to 30% if the stock is purchased at the current market price. It is a small-cap company having a market capitalization of ₹2,295.87 crore.

Company Overview

Rupa & Company Limited is one of the leading and largest knitwear brand in India. The Company is present across the entire value chain in the knitted garment space offering a gamut of products from innerwear to fashion wear. It is engaged in the manufacturing, marketing, selling and distribution of men's and women's innerwear, thermal wear and fashion wear across economy, mid-premium, premium and super-premium categories.

The Company operates through its state-of-the-art manufacturing facilities in West Bengal, Tamil Nadu, Karnataka and Uttar Pradesh. The company has a PAN-India as well as international presence with a large distribution network consisting of 1,50,000 retail outlets, 9000+ SKU's and more than 1500 dealers. Further, the company is present through online platforms like Rupa online store, Amazon, Flipkart, Myntra, etc. 

CMP, 52-Week Low/High, & Returns Over the Years

The current market price (CMP) of the stock stood at ₹288.70 per share on NSE, down 0.50% as compared to its previous close of Rs 290.15 per share. The stock in a week moved down by 6.52%. The stock in 1 month & 3 months moved down by 5.95% & 14.66%, respectively. In the past 1year, it moved down by 36.32%. However, in the past 3 years, it moved up by 60.12%. In the past 5 years, the stock moved down by 32.21%.

The stock recorded its 52 week high on 4 May 2022 at ₹585.85. Whereas, its 52 week low was recorded on 18 November 2022 at ₹285.50.

Q2-FY23 Result Update

The company reported under performance during the quarter under review as revenue from operations declined by 22.4% YoY to ₹2,771 million. Primary reason for this under performance according to the management is due to sharp volatility in yarn prices, rising inflation and overall weak sentiment resulted calibrating prices of finished products by alleviating the pressure on channel partners and therefore impacting their realization. 

On profitability front, the EBITDA from operations for the quarter declined by 60.2% year-on-year to ₹1,275 million with an operating margin of 10.4%. The company reported PAT of ₹167 million, declined by 69.6% year-on-year with a net margin of 6.04% translating into EPS of ₹2.10 per share for the quarter. 

The decline in EBITDA margin was majorly attributed to the volatile raw material prices and which impacted gross margin. Further slower growth in sales i.e sales de-growth in quarter 2 due to decreasing sales from some of the states also impacted margins. Company is planning to open stores in high footfall areas and also increasing productivity across business units while maintaining a vigilant check on cost in volume.

Buy for a target price of ₹375 per share

Given the company's extensive range of branded products across all segments, strong balance sheet and attractive valuations. "We maintain our BUY rating on RUPA, with a revised target price of ₹375 per share," 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.