Shares of Suprajit Engineering, an auto ancillary firm, have plummeted 23.06 percent so far in the current year, falling from ₹430.05 apiece to ₹330.85, as against a rise of 16.32 percent in the Nifty Auto index during the period.
The stock has witnessed sharp volatility in the current calendar year, hitting its one-year high and low in January and March, respectively.
The stock's 52-week high and low levels were Rs. 470 and Rs. 272, respectively. At the current market price of 330.85, the stock is down 29.60 percent from its one-year high.
However, domestic brokerage firm Sharekhan raised its target price and maintained its optimistic stance on the stock, citing growth opportunities.
Suprajit Engineering is engaged in the business of manufacturing of auto components, consisting mainly of control cables, speedo cables, auto lamps, and other components for automobiles, and caters to both domestic and international markets.
Sharekhan remains positive on the company's growth prospects, aided by its leadership position in the domestic cable business and locational advantage over its global peers.
"The company has evolved as a well-diversified and de-risked company through a continuous focus on improving technology, widening its product portfolio, enhancing content per vehicle, increasing geographical penetration, and building multiple brands," said the brokerage.
Over the last two and a half decades, the company’s profile has changed considerably, led by strategic acquisitions in its core expertise areas and successfully integrating various business verticals while gaining market share across segments and geographies, the brokerage highlighted.
The recently acquired Light Duty Cable (LDC) business has seen a sharp improvement in operational performance, bringing it close to breakeven during Q2FY23, it added.
Further, the company would continue to enter new segments in the non-automotive cable division. The brokerage anticipates FY2023E and FY2024E to be strong years, driven by the normalisation of economic activity, improving demand, new launches, and the acquisition of the LDC division.
However, the recent acquisition of the LDC unit could impact profitability in the medium term, the brokerage says, yet the revenue contribution is expected to increase by 20 percent, propelled by a robust business outlook and prudent capital allocation.
The brokerage projects Suprajit's earnings to see a 24.3 percent CAGR during FY2022-FY2024E, driven by a 27.2 percent revenue CAGR, partially offset by a 50 basis point decline in EBITDA margins.
The stock trades at a P/E multiple of 14.9x and an EV/EBITDA multiple of 9.8x its FY25E estimates, trading below its historical average, it noted.
Sharekhan has retained its "buy" call on the stock with a revised target price of ₹403 per share, an upside of 20.74 percent from the stock's previous closing price.
While maintaining a bullish outlook, the brokerage has outlined several significant downside risks for the stock, including a shortage of chips, rising commodity prices, and transportation constraints. In addition, a delayed approval from OEMs for incremental business may affect performance and will also remain a key concern.
For the September quarter, the company posted a marginal fall in its consolidated net profit to ₹45.7 crore compared to a net profit of ₹49.6 crore in the corresponding quarter of last year.
However, the revenue from operations during the quarter improved to ₹737.8 crore from ₹508.8 crore in Q2 FY22, a growth of 45 percent. The operating expenses came in higher at 54 percent YoY in Q2 FY23, which impacted the bottom line margins of the company.
7 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.