Top Brokerage Initiates Buy Rating On This Small Cap Stock, Sees Robust 58% Gains

Leading brokerage firm Hem Securities recommends "buy" Tarsons Products' stock with an estimated target price of ₹1,157 apiece in its recent report. Considering the stock's current market price and the target price given by the brokerage, it could give a robust return of up to 58% on investments. Tarsons Products is a small-cap company with a market capitalisation of ₹3,894.97 crore.

Tarsons Products is an Indian labware company engaged in the development, manufacturing, designing, and marketing of 'reusables', 'consumables' and 'others' including benchtop equipment, used in various laboratories across research organizations, pharmaceutical companies, Diagnostic companies, academia institutes, Contract Research Organizations, and hospitals.

Stock Overview

The Current Market Price of Tarsons Products' stock on NSE is Rs 732.05 per share. The stock recorded its 52-week low level at ₹538.70 on 28 February 2022 and its 52-week high level at ₹914.45 on 12 September 2022, respectively. The stock got listed on NSE on 26 November 2021.

 
The stock since its listing has given 10.55% negative returns on investments. In the past 1 week has fallen 0.29%, however, in the past 1 month it has given 4.7% positive returns. It has fallen 14.65% in the past 3 months. In the past 1 year, it has given 15.98% positive returns.

Result Overview

Tarson Products ltd Q2 FY23 consolidated revenues came in at ₹71 Cr, down 6.30% YoY and up 2.89% QoQ. Op Profit for Q2FY23 stood at ₹33 Cr, up 5.4% QoQ and down 13.15% YoY. Op margins for Q2FY23 came at 46% vs 45% in Q1 fy23. PAT for Q2FY23 stood at ₹21 Cr, down 16% YoY and up 5% QoQ.

 

Management Commentary

Co. posted negative set of numbers for the quarter ended 30th September 2022 on account of higher covid base. During the Quarter revenue fell 2.89% QNQ, of which domestic revenue fall 8.3% QNQ basis. Export business grew 8% YoY (+35% QoQ) driven by volume growth. During the Quarter, company took a price hike but impact of the same will be reflected in revenue in next few quarters. Co. has planned Rs 500cr capex. Expansion Plan of new facilities at Panchla & Amta is on track and increased revenue from such facilities will be reflected in next few quarters. During the quarter, Margins have declined due to the supply chain disruptions, higher promotional and marketing expenses and geopolitical tensions between Russia & Ukraine. Company has received good response for PCR in terms of quality and is expected to increase demand in both domestic & Export market. Co. is expected to maintained margins in the range of 40% to 45% over FY 23-24 on account of higher revenue contribution from new products.

Concall Summary

The operating income for the quarter was INR 71 crore, a decrease of 6.30% year-on-year basis. Operating EBITDA was INR 33cr, decrease of 13.15% on year on year and EBITDA margin stood at 46%. Net profit after tax reported was INR 21 crore, a decrease of 16% year on year while the PAT margin percentage was 29.5%. Company has received good response for PCR in terms of quality and is expected to increase demand in both domestic & Export market. Margins have declined due to the supply chain disruptions, higher promotional and marketing expenses and geopolitical tensions. Company has maintained EBITDA margins in line of 40-45%.

Other Development

Co. is expected to gain huge market share in export for which co has incurred significant expenses on marketing and promotion and revenue from the same will be reflected in next few quarters.

 

Valuation & Outlook

Company has reported weak quarter however if we exclude Covid related revenue then company has reported strong revenue growth and co is expected to maintain 18% CAGR for Fy 23-25. Co. recently took price hike and the revenue contribution from the same will be reflected in next few quarters. Margins are expected to improve as raw material prices has stabilised and is expected to remain in range for next few quarters. Company is maintaining highest margin in industry. "We initiate a "BUY" rating on the stock and value the stock at 42x FY24E earnings to arrive at the target of ₹1157," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Hem Securities. 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.