Trading 4% Near To Its 52-Week High, Buy This Small Cap Textile Stock For Good Returns

Rupa & Company Ltd's stock has been given a buy call rating by the brokerage company HDFC Securities. From its current market price of Rs. 526.40 as of 17 Jan, 3:30 pm IST, the brokerage has set a target price of Rs. 626 and expects the stock to reach that price in the next two quarters. On 03 August 2021 and 18 January 2021, the stock reached a 52-week high of Rs 550.00 and a 52-week low of Rs 279.00, respectively. The stock is now trading 4.29 percent lower than its 52-week high and 88.67 percent higher than its 52-week low.

Q2FY22 result of Rupa & Company Ltd.

HDFC Securities has said in its research report that "In Q2FY22, Rupa reported 20.4% growth in the revenues to Rs 366 Cr while earnings before interest, taxes, depreciation, and amortization (EBIDTA) and profit after tax (PAT) grew by 66% and 45% respectively on the back of improved operating efficiencies and cost reduction strategies adopted by the company. The company has witnessed improved traction during the festivals and expects a much better second half of the year. With a focus on increasing distribution network across India, it expects costs to remain at similar level going ahead."

The brokerage’s take on Rupa & Company Ltd

According to the brokerage "Going forward, the company's key strategies for growth includes - 1) constant focus on an asset-light business model with expansion through franchise based EBOs(Exclusive Brand Outlets), 2) enriching its product portfolio with scale-up of super-premium licensed brands like "FCUK" and "Fruit of the Loom" 3) foray into newer markets (including exports) and further penetration in existing markets, 5) scaling up of high margin outwear, athleisure and thermal wear segments, 4) dedicated focus on womenswear which offers tremendous growth potential, 6) continued endeavor to improve its brand equity with ~6-7% investments behind A&P."

"We had initiated coverage on 28th December 2020, followed by stock updates on 20th May 2021 and 23rd August 2021 on Rupa and all targets were achieved within the time frame. Given the robust outlook, we have now revised the earnings and target price for the stock" added further the brokerage.

Buy With A Target Price of Rs. 626

HDFC Securities has claimed that "The pandemic inflicted FY21 happened to be a path-breaking year of Rupa after a period on NIL growth between FY15 (Rs 973 Cr revenues) and FY20 (Rs 975 Cr). In FY21, the company reported an industry-leading 34.7% YoY growth aided by strategic intervention, as discussed above. The margins also improved to 19.6% in FY21 from 13-14% historically, and the company expects to maintain the margins at 17-18%, going ahead. The management has increased its revenue guidance to ~17-18% in FY22 from its earlier revenue guidance of ~15-16%, backed by improved traction from its premium, thermal, athleisure wear segment. Going ahead, we expect Rupa to report ~15% revenue CAGR FY21-24E with margins likely to remain stable. Improving working capital cycle, asset-light model augurs well for strong balance sheet position and with RoCE of 25%+, the re-rating looks certain. We feel investors can buy the stock in Rs. 515-521 band (16x Dec'23E EPS) and add more on dips in Rs 462-467 band (14.5x Dec'23E EPS) for the base case value of Rs. 577 (18x Dec'23E EPS) and bull case fair value of Rs. 626 (19.5x Dec'23E EPS)."

Disclaimer

The above stock has been picked from the brokerage report of HDFC Securities. 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.