Shares of Elgi Equipments, a manufacturer of air compressors, extended their rise for the second consecutive day on Thursday, rising 3.34% to ₹439.20 apiece.
The company's shares have seen a meteoric rise of over 76.60% from their one-year low of ₹248.7 apiece. The stock produced exceptional gains of 982.74% from its March 2020 low of ₹52.33 apiece to reach an all-time high of ₹566 in September last year.
Despite its impressive run, ICICI Direct Research, a leading brokerage firm, is still bullish on the stock and expects further upside. The brokerage, in its latest research note, has upgraded the rating on the stock to "buy" from "hold," with a target price of ₹500 apiece, citing the company's Q3FY23 performance.
Elgi Equipments is a small-cap stock with a market capitalization of ₹13,918 crore. The company manufactures a wide range of air compressors, and it is the second largest player in the Indian air compressor market with a 22% market share and among the top eight players globally.
On February 03, the company announced its Q3 results for the financial year 2023, with the consolidated net profit growing by 90.47% to ₹80 crore compared to a net profit of ₹42 crore in the corresponding quarter of last year. Sequentially, the net profit was up by 11.1%.
The consolidated revenue from operations has increased by 17.68% to ₹772 crore in Q3FY23 as compared to ₹656 crore in Q3 FY22. The operating margin came in at 15% in Q3 FY23, an expansion of over 400 bps YoY, owing to price hikes taken earlier.
In Q3FY23, the company improved its earnings per share, which climbed to ₹2.53 from ₹1.32 YoY. In the June-September quarter, the EPS stood at Rs. 2.27.
Elgi Equipments said the compressor business in the domestic market was close to the targeted numbers. While the business growth in Europe, North America, and Brazil was strong. However, some areas in the Middle East and Africa, Australia, and certain South-East Asian countries have small gaps as against their plans.
The automotive business continues to perform well in tandem with the growth in the Indian automotive sector. The company is cautiously optimistic that it will achieve its goals that were set for FY 2022–23.
ICICI Direct expects revenue, and EBITDA to grow at a CAGR of 16% and 23.7%, respectively, in FY23–25E owing to various cost control initiatives improving margins.
Previously, the management had indicated that price increases might be rolled back. However, the company has no plans to do so and prices will remain unchanged. This resulted in expansions in gross margins this quarter as well, and it reached its peak, as per the management, ICICI Direct said.
Accelerated growth in international markets, new products such as disrupted AB series compressors, and strong traction in the Indian business will drive long-term incremental growth, according to the brokerage.
Further, the company has completed the sale of Pattons Inc. (US) property for $16 million. Post this transaction, the company has become net debt free.
04 analysts polled by MintGenie on average have a ‘sell’ call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.