Buy This Small Cap Auto Stock With A Target Price of Rs. 990: HDFC Securities

Sharda Motor Industries Limited is a sweet stock to purchase in the middle of a tumultuous equity market, according to a new research study by HDFC Securities. The brokerage has set a target price of Rs 990 for the stock, with a six-month timeframe to reach there from the current market price of Rs 876.

Q2FY22 results of Sharda Motor Industries Ltd. (SMIL)

HDFC Securities has added in its report that "SMIL reported strong numbers for Q2FY22 with PAT doubling to Rs 42cr YoY and growing 71% sequentially. Consolidated revenue came in at Rs 587cr, growing by 32% YoY. Gross Margins expanded 263bps to 20.4% driven by stable production. EBITDA increased by 79% YoY to Rs 61cr and EBITDA margin expanded 274bps led by gross margin improvement and higher capacity utilisation. Other income was higher at Rs 10cr against Rs 6cr in Q2FY21 on account of higher investments made by the company. The company has undertaken cost optimising initiatives in its JV with Eberspacher and expects to breakeven in the next 3-4 quarters with a pickup in CV volumes."

The brokerage’s take on Sharda Motor Industries Ltd. (SMIL

According to the brokerage "Sharda Motor Industries Ltd. (SMIL) is a leading auto-ancillary company supplying exhaust and suspension systems to major OEMs. The company is benefitting from the BS-VI implementation and prepared with products to meet the next significant update in emission norms for CEV and tractors. It has entered in JV with Eberspaecher to manufacture commercial vehicle exhaust systems in India which would double its addressable CV/CEV market (>2.5L) and increase content per equipment by more than 100%. Even in the PV segment, its content per vehicle is expected to increase by 15% with the implementation of Real Driving Emissions (RDE) norms."

The brokerage house said in a report that "It has also forayed into EV space through a JV with Kinetic Green for developing Battery Packs with Battery Management Systems (BMS) for electric vehicles and stationary applications. SMIL aims to become powertrain agnostic in the next 5-10 years. While SMIL could benefit out of industry growth of PV and CV, implementation of TREM-IV from Oct'21 and turnaround in its JV with Eberspaecher till FY24, post that the growth due to TREM V implementation will be even faster."

Buy Sharda Motor Industries Ltd. (SMIL) With A Target Price of Rs. 990

According to the brokerage's call "We expect SMIL's revenue/EBITDA/PAT to grow at 21/35/53% CAGR over FY21-FY24, led by increased content per vehicle in both the PV and CV segment, improvement in JV profitability and operating leverage. The company is debt-free, holds substantial cash and cash equivalents with healthy return ratios and is available at inexpensive valuation considering the strong growth prospects. We believe investors can buy the stock in Rs 830-845 band and add on dips to Rs 735-750 band (10.5x Sep-23E EPS) for a base case fair value of Rs 915 (13x Sep23E EPS) and bull case fair value of Rs 990 (14x Sep-23E EPS) over the next 2 quarters."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.