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Q2FY22 results of PCL

The brokerage has said that the company’s “Consolidated revenue grew by 17% YoY to Rs 215cr driven by higher realisation. However, on a sequential basis revenue growth was muted at 3.4% due to underperformance of the domestic market on account of staggered lockdowns. Company-wise Standalone (Precision Camshaft) revenue stood at Rs 120cr while subsidiary companies’ revenue for MEMCO/MFT/EMOSS stood at Rs 14/43/46cr respectively. EBITDA increased 56% YoY on account of lower raw material expenses. EBITDA margins expanded ~340bps to 13.7%. PCL reported a PAT of Rs 20cr against Rs 10cr in Q2FY21. Adjusting for exceptional items, PAT increased by 89% to Rs 8cr.”

According to HDFC Securities “PCL received compensation for the canceIlation of the order and sunk cost from a customer amounting to Rs 24.9cr offset partly by Impairment of property, plant & equipment amounting to Rs 11.8cr during the quarter. Company-wise Standalone (Precision Camshaft) EBITDA stood at Rs 21cr while subsidiary companies’ EBITDA for MEMCO/MFT/EMOSS stood at Rs 3.0/5.2/4.6cr respectively. Revenue from European operation increased 11% YoY to Rs 117cr and accounted for 55% of total revenue, down from 57% in Q2FY21. Domestic revenue grew 37/22% YoY/QoQ to Rs 70cr.”

The brokerage’s take on Precision Camshafts Ltd.

The brokerage in its research report has said that “The performance of Precision Camshaft Ltd (PCL) was impacted over the last few years due to a global slowdown in the automobile industry which was further complicated by Covid related disruption. The company also had to incur losses in its Chinese JV. The global recovery in automobile demand and improving performance of its subsidiary companies augur well for future growth. Although the adoption of EV could put a dent in the camshaft market, we believe mass adoption of EVs is still some time away and PCL would benefit from the rising demand of ICE vehicles till then. Nevertheless, the company has made strides towards participating in the EV opportunity by acquiring Emoss (its 100% owned European subsidiary), which produces and supplies electric drivetrains and has successfully demonstrated capabilities to retrofit in ICE based buses and other heavy vehicles.”

The brokerage has also stated that “Apart from this, it also offers high-end battery systems, fuel cells, range extenders, generators, power electronics and control systems suitable for different industries. Acquisition of MFT, a specialist in machined components has resulted in broadening PCL’s product portfolio and has given access to developed markets of Europe and North America. The group’s automotive component business is now well diversified in terms of product as well as customer base where no single customer contributes to more than 23% of revenues. The company is debt-free on a net basis with strong free cash flow generation which it can utilize for any inorganic growth opportunities.”

Buy Precision Camshafts Ltd. with a target price of Rs. 168

According to the brokerage’s call “We expect PCL’s revenue/EBITDA/PAT to grow at 16/31/173% CAGR over FY21-FY24, led by the increased demand from the domestic automobile industry and strong growth in the European business. We expect RoE to improve from 0.5% in FY21 to 8.6% in FY24. We believe investors can buy the stock in the band of Rs 143-146 and add on dips to Rs 125-128 band (22.5x Sep-23E EPS) for a base case fair value of Rs 157 (28x Sep-23E EPS) and bull case fair value of Rs 168 (30x Sep-23E EPS) over the next 2 quarters.”

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities Limited. 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.

Target Price

The Current Market Price (CMP) of Divi’s Laboratories is Rs. 4716 The brokerage firm, ICICI Direct has estimated a Target Price for the stock at Rs. 5600. Hence the stock is expected to give a 17% return, in a Target Period of 1 year.

Company performance

The pharma sector overall has performed quite well during the pandemic. The brokerage firms stated that Divi’s Laboratories had lower than estimated results in Q2FY22 as higher CS nullified by muted generics. The company’s sales were up 13.6% YoY to Rs. 1987.5 crore, while EBITDA in Q2FY22 was at Rs. 818 crore, up 10% YoY with margins at 41%. Consequent adjusted PAT was at Rs. 606.5 crore (up 16.7% YoY). ICICI Direct commented, “The company has been building capacities in a few more niche APIs as per the evolving demand scenario in the backdrop of ‘China plus one’ opportunities.”

Comments by ICICI Direct

According to ICICI Direct, “Divi’s share price has grown by ~3.9x over the past five years (from ~Rs. 1198 in June 2016 to ~Rs. 4716 levels in November 2021). Maintain BUY on the back of strong outlook both in CS and generics based on significantly high visibility CAPEX and customer stickiness.”

About the company

Divi’s is engaged in manufacturing generic APIs and intermediates, custom synthesis (CS) of active ingredients and advanced intermediates for pharma MNCs, other specialty chemicals like Carotenoids, and complex compounds like peptides and Nucleotide revenues. The company is progressing on the Kakinada greenfield project (planned outlay Rs. 1000-2000 crore).

Disclaimer

The above stock was picked from the brokerage report of ICICI Direct. 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.