1 Cement, 2 Auto Ancillaries Stocks To Buy As Suggested By ICICI Securities

SKF India- Solid revenue growth compensates for low gross margin

The brokerage firm recommends a buy with a target price of Rs. 3960. The stock was last trading at Rs. 3340, representing a gain of 19 percent.

Q2FY22 Result

SKF announced strong Q2FY22 performance.

Revenue for the quarter was | 966.4 crore (I-direct estimate: Rs 787.2 crore), up 37.4 percent year over year and 39.3 percent quarter over quarter.

In Q2FY22, EBITDA was Rs 159.8 crore, up 40.7 percent from the previous quarter.

Consequent PAT was Rs 117.6 crore in Q2FY22, with a tax rate of 24.7 percent.

Target and Valuation

“SKF has been making strides towards innovation and R&D and has made significant inroads in REP. Going ahead, a recovery in auto, upcoming e-market & commencement of DFC should augur well for the company. Build in revenue, EBIDTA, PAT CAGR of 21.4%, 20.8%, 21% respectively Target Price and Valuation: We value SKF at Rs 3957 i.e. 40x P/E on FY23E EPS,” the brokerage has said.

Key triggers for future price performance

• The auto industry’s recovery should help the manufacturing sector.
• The upcoming DFC in mid-CY22, which will push out Class K bearings, as well as metro developments in 25-26 new cities, would give the industrial industry a boost.
• Gross and EBITDA margins will improve as the industrial segment bearings become more indigenized.

Wabco India

The brokerage firm recommends a buy with a target price of Rs. 8800. The stock was last trading at Rs. 7475, representing a gain of 18 percent.

Q2FY22 Results

The firm had a strong second quarter of fiscal year 22.

For the quarter, the total operating income was $ 616.5 crore, up 47.2 percent year on year.

EBITDA margins were 10.2 percent, up 160 basis points from the previous quarter.

PAT for the period was Rs 32.3 crore compared to Rs 35 crore in Q2FY21.

Target and Valuation

“WIL share price has grown at ~6% CAGR from ~Rs 5,600 in October 2016, thereby outperforming Nifty Auto index in that time. We retain BUY; CV recovery play focused on exports, content increase. Target Price, and Valuation: We value the company at a revised target price of Rs 8,800 i.e. 50x P/E on FY23E EPS (earlier target price Rs 8,020),” the brokerage has said.

Key triggers for future price-performance:

• New product development, including connected, driverless, and electric vehicles, is one of the company’s top priorities.
• Mix and operating leverage pushed margins up to 15.5 percent and 18.2 percent, respectively (FY23E).

Sagar Cement

The brokerage firm recommends a buy with a target price of Rs.350. The stock was last trading at Rs. 265, representing a gain of 32 percent.

Q2FY22 Results

• In Q2FY22, higher gasoline prices resulted in a significant decrease in margins.
• During Q2FY22, the margin shrank by 1568 basis points year over year and 1081 basis points quarter over quarter to 16.5 percent, owing mostly to a substantial increase in gasoline prices.
• Non-trade demand was strong, resulting in a 13.2 percent increase in revenue year over year to Rs 368.9 crore. The rainy season had a negative impact on retail demand.
• PAT fell 58.6% year on year to Rs 20.8 crore (vs. I-forecast direct’s of Rs 35.3 crore).

“With capacity expansions into high growth regions like East & Central, we expect strong growth momentum going forward. Given the healthy outlook, cost efficiency, healthy b/s and relatively inexpensive valuations, we maintain BUY rating Target Price and Valuation: We value Sagar at Rs 350 i.e.8.5x FY23E EV/EBITDA,” the brokerage has said.

Disclaimer

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. This article is for educational purpose.