Buy Kirloskar Pneumatic Company, target price Rs 657: HDFC Securities

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Buy Kirloskar Pneumatic Company, target price Rs 657:  HDFC Securities


Securities has buy call on with a target price of Rs 657. The current market price of Pneumatic Company is Rs 563.45. Time period given by analyst is six to nine months when its price can reach defined target.

Kirloskar Pneumatic Company, incorporated in the year 1974, is a small cap company (having a market cap of Rs 1004.75 crore) operating in Electric/Electronics sector.

It’s key products/revenue segments include compressors, sale of services, lease rentals, other operating revenue for the year ended March 31, 2022.




Financials

For the quarter ended June 30, 2022, the company has reported a standalone total income of Rs 274.11 crore, down 31.83 per cent from last quarter total income of Rs 402.10 crore and up 59.38 per cent from last year same quarter total income of Rs 171.99 crore. Company has reported net profit after tax of Rs 16.27 crore in latest quarter.

The company’s top management includes Mr.Rahul C Kirloskar, Mr.Tejas Deshpande, Mrs.Nalini Venkatesh, Dr.Ajay Kumar Dua, Mr.Sunil Shah Singh, Mr.G Krishna Rao, Mr.Vikram S Kirloskar, Mr.Atul C Kirloskar, Mr.K Srinivasan, Mr.Mahesh Chhabria. Company has P G Bhagwat as its auditors. As on 30-06-2022, the company has a total of 6 crore shares outstanding.

Investment Rationale
KPCL seems to be in a sweet spot due to the revival in capex first by the Govt. and later by the Private sector. Its financial and operational metrics are sound.

Capital Goods as a sector has got rerated over the past few months in anticipation of better order flows and execution, despite concerns of higher raw material costs.

KPCL having set ambitious targets could witness an expansion in earnings and valuations. It is a debt free company with modest capex requirements.

The brokerage expects its revenue/EBITDA/PAT to grow at 19/20/26% CAGR over FY22-FY24E, led by revival in industrial activity, and increasing export orders. RoCE/RoNW are expected to improve to 22.5/16.5% by FY24E.

They believe investors can buy the stock on dips in Rs 525-535 band and add more in Rs 465-475 band (23.5x FY24E EPS) for a base case fair value of Rs 617 (31x FY24E EPS) and bull case fair value of Rs 657 (33x FY24E EPS) over the next 2-3 quarters.

Promoter/FII Holdings
Promoters held 53.63 per cent stake in the company as of June 30, 2022, while FIIs owned 0.17 per cent, DIIs 19.13 per cent.

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