Shares of Bharat Wire Ropes soared 130.59% in CY23 so far, recording their biggest yearly performance since listing in 2016. Notably, the shares rallied 64% in March alone and finished six out of the last eight months in positive territory. In today's trading session, the shares jumped 4.12% to record a new all-time high of ₹244.9 apiece.
The shares have demonstrated consistent growth over the past three years, achieving returns of 31.45% in CY20, 59% in CY21, and 79% in CY22.
Bharat Wire Ropes is one of the leading manufacturers of specialty steel wire, steel wire ropes, slings, and strands, with thousands of varieties of products. The company has the capability of manufacturing wire ropes ranging from 6 mm to 90 mm and steel wire ranging from 0.3 mm to 5.5 mm.
Domestic brokerage firm ICICI Direct Research said that the company is strongly positioned to benefit from healthy demand for its products in global and domestic markets, led by a buoyant capex outlook in infra and industrials and growing replacement demand.
Solid presence in global markets: The brokerage highlights that the company possesses robust manufacturing and distribution capabilities, underpinned by cutting-edge facilities, strategic proximity to ports, and an extensive distribution network.
With 83% of its revenue coming from exports, the company has a significant presence in global markets, with products being exported to over 50 countries. In addition, the company is continuously exploring newer markets globally and targets to increase its global market share, led by its strong competitive edge in terms of cost of production, better pricing, proximity to ports, and on-time delivery.
Given its robust manufacturing capabilities, a diverse product portfolio with continuous enhancements, and a competitive edge over many global players, ICICI Direct believes that the company is strongly positioned to expand its market share in international markets.
Moreover, there is a strong demand outlook in the replacement market in international markets, which would drive the company’s sales volumes in coming periods, it added.
Buoyant domestic capex presents a sizable opportunity: According to the brokerage, the Indian steel and wire manufacturing sector has been witnessing strong growth momentum on the back of increased government spending in infrastructure development as well as private & public sector investments in industrial sectors.
Recently, the government announced its plan to develop over 250 ropeway projects worth ₹1.25 lakh crore over a period of five years, which is expected to create a huge demand for wires and ropes in the coming period, the brokerage stated.
Healthy volume growth with operational efficiency measures: The company's volume growth stood at 13% in FY23, with capacity utilisation at 60–62%. EBITDA per ton jumped sharply to ₹36,023 during the year from ₹18,149 in FY22, primarily led by a 30% YoY improvement in realisation, an improvement in capacity utilisation, and positive operating leverage on account of healthy volume growth, said the brokerage.
Going ahead, the company expects volume growth of 15-20% every year for the next 3 years (with capacity utilisation reaching 80–85%), led by a healthy demand scenario in both domestic and international markets, strong replacement market demand, and entry into newer markets.
Strong revenue and PAT growth: The company’s revenue grew at a 31.7% CAGR over the last 3 years (FY20–23), led by strong volume growth and improvement in realisations. Going ahead, the brokerage expects a revenue CAGR of 15% over FY23-25E, driven by healthy volume growth of 15% CAGR over the same period.
On account of healthy revenue growth and improvement in margins, the company came into profit in FY23 as against losses in FY20. The brokerage estimates net profit to grow at a 47.2% CAGR over FY23–25E to ₹134.8 crore in FY25E from ₹62.2 crore in FY23, mainly led by further growth in revenues and improvement in margins during the period.
In light of these factors, the brokerage recommends a 'buy' rating on Bharat Wire Ropes with a target price of ₹300 apiece, based on 15x FY25 EPS.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.
