With 1-Year Return of 105.77% This Industrial Stock Gets A Buy Call From Sharekhan

Sharekhan Ltd, a brokerage company, has issued a buy call on Schaeffler India Ltd's stock. The company has a market capitalization of Rs. 29,035 crores and the stock is presently trading at Rs. 9,410 per share as of 3:30 p.m. IST on January 6th. In the past year, the stock has risen from Rs. 4573 on January 7, 2021 to Rs. 9410 currently, resulting in a wonderful gain of +4,837.00 (105.77 percent) for shareholders. The brokerage has set a target price of Rs. 10,678 and forecasts a 13.47 percent growth in the stock's value over the next 12 months.

The brokerage’s take on Schaeffler India Ltd (SIL)

Sharekhan has said in its latest research report that "The company is likely to be a key beneficiary of electrification and hybridization trend for domestic business, as India is expected to witness faster growth in the electric and hybrid vehicles going forward. The company expects electrification to be at high single-digit by 2030, while hybridization to be 25-35%. The company has a strong product portfolio and is well placed to benefit from this trend."

According to the brokerage "In the automotive OEM segment, SIL is witnessing increased content per vehicle in the petrol passenger vehicle (PV) segment post the implementation of BS-VI emission norms; while in the industrial OEM segment, the company is witnessing strong growth from the railways' segment and wind power division. We expect SIL to continue its better-than-industry performance, given its strong pedigree of parent, which gives access to the latest technologies and relationships with global OEMs & Tier I suppliers. Given the robust outlook for SIL's business, we expect its earnings to post a 64% CAGR during CY2020-CY2022E, driven by a 36.7% revenue CAGR during CY2020- CY2022E and a 310 bps improvement in EBITDA margin from 14.3% in CY2020 to 17.4% in CY2022."

The brokerage has also claimed in its research report that "We remain positive on Schaeffler India Limited (SIL), driven by a strong outlook for its automotive and industrial businesses and improving content per vehicle. The company has a strong R&D and technology bandwidth, which makes it well placed to garner benefit from the electrification and hybridization trend in the domestic automobile sector. The company's board has approved stock split in 5:1 ratio and targets a dividend payout ratio of 30-50% of the annual standalone net profit, which will benefit the shareholders' going forward."

Buy With A Target Price of Rs. 10,678

Sharekhan has highlighted that "SIL has been consistently outperforming industry growth rate, driven by its technological edge and established relationships with leading OEMs/clients in India and globally. After a dip in a performance led by a COVID-induced lockdown in Q2CY20, the company's performance has improved steadily, aided by a strong recovery in the automotive segment and industrial segment. Exports continue to do well and contributed ~11% to revenue in Q3CY2021. We expect a robust performance by the company going forward, driven by normalisation of economic activity, improvement in content per vehicle, strong growth in the wind power and railways businesses, and launch of new products in the aftermarket segment."

According to the brokerage "We expect its earnings to post a 64% CAGR from CY2020-CY2022E, driven by a 36.7% revenue CAGR during CY2020-CY2022E and a 310 bps improvement in EBITDA margin from 14.3% in CY2020 to 17.4% in CY2022. The stock is trading at a P/E of 37.9x and EV/EBITDA of 22.4x its CY2022E estimates. The premium valuations are justified, given the pedigree of its parent company and its capability to outperform industry and peers. We reiterate our Buy rating on the stock with a revised PT of Rs. 10,678. Delayed approval from industrial customers and late launches by automotive players can impact growth. Moreover, growth momentum might get derailed if the third wave (Omicron) of COVID hits as severely as the second wave."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan Ltd. 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.