This Stock Can Jump 30% On Robust Earnings, Improved Margins

The stock of Sundram Fasteners Ltd, like most other stocks has fallen in the last six months. The stock at the current market price of Rs 793 offers plenty of scope for appreciation, according to broking firm Sharekhan.

Blockbuster earnings growth likely

Sharekhan expects the company to report a blockbuster set of earnings between FY 2022-24. "We expect Sundram Fasteners earnings CAGR to improve by 38% during FY2022-FY2024E, driven by a 21.5% revenue CAGR and a 160-bps improvement in EBITDA margin to 17.9% in FY2024E from 16.3% in FY2022, with ROCE progressing to 24% in FY2024E," the brokerage firm has stated. The improvement in the economic environment is also likely to benefit the company as the auto space is likely to see good growth going ahead.

Margins under pressure in Q4

Sundram Fasteners reported lower-than expected EBITDA margin in Q4FY2022, driven by increased raw-material and logistics costs, according to Sharekhan.

"Standalone revenue improved by 11.9% q-o-q to Rs. 1,146 crore, while consolidated revenue declined by 11% q-o-q to Rs. 1,339.8 crore in Q4FY2022. Export continues to drive revenue with 8.7% y-o-y and 40.7% y-o-y growth in Q4FY2022 and full-year FY2022, respectively. The company benefitted from higher exports, led by opening up of western geographies," the brokerage has said.

Margins decline, traction seen in electric vehicle space.

EBITDA margin declined by 260 bps q-o-q for the standalone business, while that of the consolidated business declined by 150 bps q-o-q, marred by rise in raw-material and logistics costs. As a result, standalone net profit declined 22% y-o-y to Rs. 101.4 crore in Q4FY2022, while consolidated PAT declined 23.7% y-o-y to Rs. 107.4.

"Sundram Fasteners is also seeing traction from the electric vehicle space, where it supplies radiator caps. The company has a well-diversified customer and product portfolio," Sharekhan has said.

30% gains likely in the stock

Sharekhan has a buy on the stock of Sundram Fasteners and sees gains up to 30% on the stock. The firm has set a price target of Rs 1030 on the stock as against the current market price of Rs 793. "We have fine-tuned our earnings estimates to build the impact of increasing raw-material costs. The stock is trading at a P/E multiple of 18.3x and EV/EBITDA multiple of 11.7x its FY2024E estimates, which is trading below its average multiples. We retain our Buy rating on the stock with a revised price target of Rs. 1,030," the brokerage has said.

About Sundram Fasteners

Sundram Fasteners Ltd is a part of the TVS Group and is one of the leading auto component manufacturers in India. The company is engaged in the manufacture of fasteners powertrain components sintered metal parts iron powder cold extruded parts iron power cold extruded parts radiator caps and wind energy components. The company has 6 domestic subsidiaries and 5 overseas subsidiaries.

Disclaimer

The above stock is picked from the brokerage reports of Sharekhan. Investing in equities poses a risk of financial losses and investors should understand the nature of the risk. 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.