Shares of Tube Investments have given stellar returns to its long-term investors, rising over 6 times in the last 4 years. The stock has jumped from around ₹250 in June 2018 to currently trade around ₹1,530, gaining as much as 512 percent in this time.
The stock has added 30 percent in the last 1 year but has fallen 13 percent in 2022 so far.
Tube Investments is a flagship company of the Murugappa group. It has a diversified range of products under its three verticals – engineering, metal forming products, bicycles and others. The Company provides its products to industries such as automotive, railway, construction, mining, and agriculture. It is the market leader in manufacturing precision steel tubes under the engineering vertical with 60 percent market share in telescopic front fork suspension. It is also the second-largest player in the bicycle business.
Recently, brokerage house Motilal Oswal Financial Services initiated coverage on the stock with a ‘buy’ call and set a price target of ₹1,900, indicating an upside of 25 percent in the next 12 months.
The brokerage noted that under the leadership of Vellayan Subbiah, TIINDIA has articulated the TI way of growth, with objectives of a) delivering 25 percent profit CAGR over the long term and b) moving away from being an auto component supplier only.
The TI way of growth has three components – TI-1 (existing businesses), TI-2 (a venture capital style model) and TI-3 (a private equity style model based on acquisitions), it informed.
MOSL further stated that the company's underlying philosophy is to invest cash flows of the existing businesses (TI-1), which do not need much capital for growth: a) seed several new platforms for long-term growth (under TI-2; e-3-Wheelers, e-tractors, Optic lens, and Truck body building), and b) acquire stressed assets (under TI-3; acquired CG Power in Nov’20).
“Tube Investments offers diversified revenue streams, with strong growth in the core business, the ramp-up in CG Power and optionality of new businesses incubated under TI-2 strategy,” the brokerage said in the note. It believes that the new strategy of the company could be a trigger for rerating in the future as the company looks to reinvest its cash flows to seed new platforms for long-term growth and acquire stressed assets.
It further added that the company’s existing business in engineering, metal-formed products, cycles and others will also continue to be the bedrock of the new strategy. the firm expects a 25 percent annualised growth in net profit over the coming years.
Meanwhile, Motilal Oswal sees revenues growing at a 15 percent CAGR for the next three years and net profit at a CAGR of 20 percent in this period.
“We are not building in for any benefit from new ventures under TI-2 strategy in our consolidated performance,” the brokerage added.
For the March quarter, the firm reported a standalone profit after tax (PAT) of ₹136.36 crore versus ₹129.12 crore in the year-ago period. Its total income during the quarter under review rose to ₹1,772.21 crore from ₹1,507.06 crore in the corresponding quarter last fiscal.
Meanwhile, for the full fiscal FY22, its standalone PAT surged to ₹475.17 crore from ₹273.18 crore registered a year ago. Total income for FY22 also rose to ₹6,432.91 crore from ₹4,302.28 crore registered a year ago.
As per the brokerage, ‘Lean’ program execution for margin improvement, TI-2 strategy execution in new business areas, sustained turnaround of acquisition under TI-3 strategy, and upside risk to CG Power estimates are key risks.
Disclaimer: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making an investment decision.