Multibagger Pitti Engineering likely to see another 30% rise, says Axis Securities – key reasons | Mint
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Business News/ Markets / Stock Markets/  Multibagger Pitti Engineering likely to see another 30% rise, says Axis Securities – key reasons
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Multibagger Pitti Engineering likely to see another 30% rise, says Axis Securities – key reasons

The brokerage has initiated coverage on the stock with a ‘buy’ call and a target price of ₹915, implying a potential upside of 31 percent.

The brokerage has initiated coverage on the stock with a ‘buy’ call and a target price of ₹915, implying a potential upside of 31 percent. (iStock)Premium
The brokerage has initiated coverage on the stock with a ‘buy’ call and a target price of 915, implying a potential upside of 31 percent. (iStock)

After the stock more than doubled investor money this year as well as in the last 1 year, brokerage house Axis Securities sees multibagger capital goods stock Pitti Engineering (PEL) surging another 30 percent going ahead.

The brokerage has initiated coverage on the stock with a ‘buy’ call and a target price of 915, implying a potential upside of 31 percent. The recommendation is supported by key factors:

a. Increasing Capacity: PEL has been enhancing its capacity, contributing to its growth prospects.

b. Growing Share of Value-Added Products: The company's focus on value-added products is seen as a positive factor.

c. Expanding Global Footprints: PEL's global expansion is recognised as a strength contributing to its growth potential.

Financial projections

Axis projects PEL's revenue to grow at a Compound Annual Growth Rate (CAGR) of 13% to reach 1,588 crore by FY26.

Operational improvement is expected, with EBITDA projected to grow at a 13% CAGR to 258 crore by FY26.

The brokerage anticipates a cumulative boost in profitability at a CAGR of 38% by FY26 to reach 154 crore.

Operational margin expansion is expected, reaching 16.2% by FY26, indicating a 240 basis points improvement.

A combined strategic operation is predicted to enhance PEL's Return on Equity (ROE) and Return on Capital Employed (ROCE) to 25.8% and 26.7%, respectively, by FY26.

Stock performance

The stock has already surged 116 percent in the last 1 year and over 130 percent in 2023 YTD, giving positive returns in 7 of the 12 months till date.

It has jumped over 12 percent in just 3 sessions of December. Meanwhile, it has given double-digit returns in 4 other months. It rallied 13.4 percent in October, 37 percent in August, 27.5 percent in July and 21 percent in April. However, it shed the most in February and September, down over 6 percent each.

The stock hit its record high of 748 today, on December 5. It has now gained over 191 percent from its 52-week low of 256.80, hit on March 16, 2023.

Company background

Pitti Engineering, founded in 1983, is recognised as India's largest manufacturer of electrical sheet laminations, motor cores, sub-assemblies, die-cast rotors, and machined components.

The company specialises in manufacturing value-added motor/generator sub-assemblies with 40 years of expertise.

Investment rationale

Value-added products to yield higher realisations: The brokerage noted that Pitti has strategically evolved its products to meet market demands, resulting in the company's profitability improvement. These value-added products have also helped the company to enhance its competitive edge and attract more customers. In FY23, PEL’s EBITDA/Ton improved by 5 percent (3-year CAGR), thereby improving its profitability further by 51 percent (3-year CAGR). These value-added products have also helped the company to enhance its competitive edge and attract more customers, added Axis. Similarly, with increasing demand in the renewable energy segment in the international market, the brokerage believes, the export market will significantly aid in PEL’s revenue growth and improve its profitability moving forward.

Capex-driven economy to support robust order book: Axis noted that in FY23, Pitti’s order book significantly improved by 149 percent YoY to 823 crore backed by a) a diversified product basket, and b) robust demand from the domestic market on account of economic growth and increasing inquiries from the international market. It expects the company’s order book to further improve given the increasing growth and demand from the Railways, Power Generation, and Industrial sectors for the company’s products. To cater to this demand, the firm has already carried a major Capex of 467 crore in a phased manner from FY21. This has increased PEL’s production capacity by 56 percent in the last 3 years.

Pitti Casting (PCPL) merger and potential acquisition: The firm recently announced the merger of Pitti Castings – a group company engaged in the manufacturing of high-quality casting in grey iron, ductile iron, low carbon, and alloy steel grades. Post merger, PCL’s revenue is expected to grow significantly on account of robust demand in the components business, leading to higher operating margins for the company, informed Axis. In FY23, PCPlL’s revenue stood at 150 crore, in which PEL contributed 80 crore. This merger will aid the company in ensuring a consistent supply of high-quality casting products and will have enhanced control over the supply and inventory management of raw materials, stated the brokerage. PEL is also looking into potential acquisitions to further increase its market share and sales volume by 20 percent, it added.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Published: 05 Dec 2023, 06:39 PM IST
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