Buy This Multibagger Small Cap Auto Ancillary Sector Stock, Target Price Rs 1,111: Sharekhan

Sharekhan in its recently published report reiterates "Buy" recommendation on Alicon Castalloy Ltd. with a 12-month price target of Rs. 1,111. Alicon Castalloy is a small cap Auto Ancillary sector company. Investors purchasing the stock at the current market price are likely to gain 28% in 12 months, taking into account the estimated target price of the stock.

FY2022 annual report highlights on its timely investments in developing new products for carbonneutral technology and focus on technology agnostics components, making it future ready for changing trend in the automobile sector.

Stock Outlook & Returns

The current market price of Alicon Castalloy on NSE is Rs 871.10 apiece. The 52-week low of the stock is Rs 585.05, recorded on 21 June 2022 and the 52-week high is Rs 1,014.60 recorded on 19 September 2022, respectively.

The stock has fallen around 3.3% in the past 1 week. In the past 1 and 3 months, the stock has given 9.48% and 36.78% positive returns, respectively. It has given 13.92% positive return over the past 1 year. In the past 3 and 5 years, it gave 131.55% multibagger return and 61.4% positive return, respectively. 

Prime focus on continuously improving on R&D capabilities

FY22 annual report highlights on its timely investments in developing new products for carbon-neutral technology and focus on technology agnostics components, making it future ready for changing trends in the automobile sector. The company, being a leading player in aluminium alloy castings, has focused on light-weighting of its products in auto ICE and EV space to benefit from changing preference of OEMs. 

EV segment to be the key growth driver

The company's long-term target is to bring wallet share in the EV business to 12% in FY23E and 36% of overall revenue by FY26 from 7% in FY22. The company has recently won an order from Jaguar Land Rover (JLR), UK, for the supply of e-axle housing, a critical product for the e-mobility platform. This order win is a the highest-ever order win from a single customer for a single product for the company. 

Expect strong earnings growth

Besides, the company's focus on light-weighting technology and EV segment components, the company has been focusing on strengthening its export and international business. Earnings are likely to report a robust 118% CAGR during FY2022-FY2024E, led by a 27% revenue CAGR and a 300-bps improvement in EBITDA margin to 13.4% in FY2024E from 10.4% in FY2022.

Benefit from multi-year order wins

The brokerage said, "We maintain our positive view on Alicon Castalloy Limited's (Alicon's) growth prospects, led by robust order book, multi-year order wins, increased share of high-margin machined components, and higher share of the e-mobility business. Management has taken significant steps to up its technological capabilities at the right time to align its product portfolio towards changing trends in the automobile sector. The company, being a leading player in aluminium alloy castings, has focused on lightweighting of its products in auto internal combustion engine (ICE) and electric vehicles (EV) space to benefit from the changing preference of original equipment manufacturers (OEM). As a result, the company not only won new contracts from existing OEM clients but also won contracts from new clients from India and global markets, taking revenue share of EV components to 7% in FY22 from 2% in FY20. The company is also focusing on value-added products and international markets. As of FY22-end, the company's order book since FY19 stood at robust Rs. 3,000 crore. Overall, the company's long-term target is to bring wallet share in the EV business to 12% in FY23E and 36% of overall revenue by FY26. We believe the company continues to gain new businesses on account of strong research and development (R&D) capabilities, its expertise in aluminium alloy castings, and long-established relationship with leading OEMs."

Sharekhan Maintain Buy with a revised Price Target of Rs. 1,111

Alicon is likely to benefit from multi-year order wins, which are expected to contribute significantly going forward. "We remain positive about the company's growth prospects, given the company's multi-year order wins, increased share of high margin machined components, and enhanced share of e-mobility components. We expect Alicon's earnings to report a robust 118% CAGR during FY2022-FY2024E, led by a 27% revenue CAGR and a 300-bps improvement in EBITDA margin to 13.4% in FY2024E from 10.4% in FY2022. We have revised our Price Target upwards to Rs. 1,111, led by rolling forward our target multiple to September 2024E EPS. The stock is trading at an attractive P/E multiple of 12.7x and EV/EBITDA multiple of 5.7x its FY24E estimates," the brokerage has said.

Key Risks

Alicon has significant exposure to international markets. Any slowdown or cyclical downturn in any of the locations, where it has a strong presence, can impact its business and profitability.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.