Defying the trend! This smallcap stock nearly doubled investor wealth in less than a year

Smallcap auto component manufacturer Rolex Rings has been a boon to its investors, nearly doubling investor wealth in less than a year. The stock has advanced as much as 91 percent from its IPO price of ₹900 to currently trade around ₹1,721 per share.

Last week, the stock hit its all-time high of ₹1,878.95, surging 109 percent from its issue price. Just in 2022 so far, the stock has jumped over 60 percent despite weak market sentiment and steep correction in Indian markets amid negative global and domestic trends. In comparison, the Nifty50 index has lost 7 percent in 2022 YTD. It is a smallcap stock with a market cap of ₹4,686 crore.

It is important to note that smallcap stocks are highly risky and not suitable for risk-averse investors. Only high-risk investors with a strong knowledge of the stock markets should invest a small percentage of their portfolio in such stocks and one must contact their financial advisor before doing so.

Founded in 1977 and based in Gujarat, Rolex Rings is among the leading manufacturers of forged and machined components in India. The company’s products are used in industrial, railways, off-highway, earth moving, windmill, textile, electrical, defense, power, aerospace, marine, and oil and natural gas industries, as well as for two, three, and four-wheelers.

The company made its debut on the stock market last year on August 9, 2021, and was listed at a 38 percent premium of ₹1,249 as against its IPO price of ₹900.

Its IPO also witnessed overwhelming subscriptions to the tune of 130 times. Since then it has been on an upward trend even when most companies including the mega LIC have not performed well post their IPOs.

Recently, brokerage house HDFC Securities initiated coverage on the stock with a target price of ₹1910, indicating a potential upside of 11 percent in the next 6 months.

"The company has witnessed strong growth in FY22 and the management has guided that the momentum is expected to continue as they are witnessing strong demand pull across domestic as well as export markets. They have guided for Rs.1250 Cr revenue for this year and are confident of achieving a similar kind of margin run rate," said the brokerage.

To reduce the power cost, the company has invested in renewable energies projects, added HDFC, further noting that the firm has already built windmills and is now invested in the solar plant which will be fully operational by end of FY23.

HDFC also pointed out that the company is also looking to improve the capacity utilization levels and to grab the rising opportunity from the EV space, the management has increased focus in this area and has guided that the share of EV in the total sales could rise up to 14-15 percent in next 2 years from current 7 percent. The stock can fetch higher valuations based on revenue and margin visibility, it added.

It further stated that the firm's margins are likely to stabilise around the current level for the company. The record demand outlook for the company's product line has been triggering gains for the stock for quite some time, HDFC highlighted.

For the full year FY22, the firm's net profit rose 51.66 percent to ₹131.88 crore as against ₹86.96 crore in FY21. Its sales also advanced 64.96 percent to ₹1016.71 crore in FY22 versus ₹616.33 crore during the previous year ended March 2021.

Post the earnings, the firm said that it is witnessing a strong demand pull across domestic as well as export markets, especially in industrial rings and automotive exports. 

It continues to witness strong order wins as well as the implementation of previously won programs; rapidly expanding across European and Latin American plants of a leading bearing company, Rolex Rings said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.