This Multibagger Small Cap Stock Grew 16.7% In 1 Week, Buy For Rs 1,159 Target Price: Sharekhan

Sharekhan in its recent report on Alicon Castalloy Limited has recommended "buy" the stock with a positive outlook for a target price of Rs 1,159 apiece. The brokerage claims a potential gain of 9% considering the brokerage's estimated target price and the current market price of the stock. Alicon Castalloy is a Small-cap Auto Ancillary sector stock with a market capitalization of Rs 1,720.58 crore.

The brokerage remains positive on the company's growth prospects, led by a robust order book, multi-year order wins, an increased share of high-margin machined components, and a higher share of the e-mobility business. Earnings to report a robust 118% CAGR during FY2022-FY2024E, led by a 27% revenue CAGR and a 300-bps improvement in EBITDA margin. The stock trades attractively at P/E multiple of 13.9x and EV/ EBITDA multiple of 6.2x its FY2024E estimates.

Stock Outlook & Returns on Investments

The stock last traded at Rs 1,067.90 apiece on NSE after touching its fresh 52-week high level of Rs 1,112.90. The stock recorded its 52 week low level on 21 June 2020 at Rs 585.05. The stock has given 16.7% in 1 week, 18.83% in 1 month and 33.9% in 3 months, respectively. In the past 1 year, it has given 36.55% positive returns. In the past 3 years, it has given a multibagger return of 188.54%. In the past 5 years, it has given a massive 80.3% positive returns.

Good quarterly performance: Reiterate Buy

Alicon Castalloy Limited's Q2FY23 results were slightly above expectations, with revenue, EBITDA and PAT beating estimates by 1.7%, 3% and 12%, respectively. The company's performance in Q2 was strong, with EBITDA and PAT growing by 14.7% q-o-q and 42.5% q-o-q respectively. We maintain our positive view on Alicon Castalloy Limited's (Alicon's) growth prospects, led by a robust order book, multi-year order wins, increased share of high-margin machined components, and higher share of the e-mobility business. 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 a robust Rs. 3,000 crores. 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 because of its strong research and development (R&D) capabilities, its expertise in aluminium alloy castings, and its longestablished relationship with leading OEMs. We reiterate our Buy recommendation on the stock with a 12-month price target (PT) of Rs. 1,159.

Key positives & negative

Key Positives

Q2FY23 results were slightly above expectations, with revenue, EBITDA and PAT beating estimates by 1.7%, 3% and 12%, respectively. The company's performance in Q2 was strong with EBITDA and PAT growing by 14.7% q-o-q and 42.5% q-o-q, respectively. 

EBITDA margin expanded 40bps q-o-q to 11.3% in Q2FY23, led by improved product mix, cost reductions and operating leverage benefits.

In Q2FY23, the Company booked ten new parts from four customers. Out of 10 unique parts, nine were from the PV segment, while one was from the 2W segment.

Key negatives

The company highlighted geopolitical tension between Russia and Ukraine, which may affect revenue growth if the situation aggravates.

Valuation - Maintain Buy with a revised PT of Rs. 1,159

Alicon is likely to benefit from multi-year order wins, which are expected to contribute significantly. We remain optimistic 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 PT upwards to Rs. 1,159, led by rolling forward our target multiple to September 2024E EPS. The stock is trading at an attractive P/E multiple of 13.9x and EV/EBITDA multiples of 6.2x its FY24E estimates.

According to the brokerage, the key risks to their buy call would be, 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 it is 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.