This week, we take a look at analyst picks from the Industrial Machinery sector
- 3M India: ICICI Securities maintains a ‘Buy’ call on this industrial machinery company with a target price of Rs 27,400. This indicates an upside of 10.4%. In Q2FY23, the company’s revenue increased by 19.2% to Rs 1,011.5 crore and profit grew 65.4% to Rs 106.2 crore.
Aniruddha Joshi, Karan Bhuwania and Pranjal Garg believe that strong numbers across all segments led to revenue growth. According to them, “Timely price hikes and other cost-saving initiatives helped 3M India expand EBITDA margins by 161 bps YoY amid input inflation, supply-chain challenges and rupee depreciation.”
The abrasive products manufacturer announced its first-ever dividend of Rs 850 per share in Q2FY23. This will lead to a cash outflow of Rs 957.5 crore but analysts believe that 3M’s capability to invest in capex remains intact even after the payment due to net cash of Rs 400 crore. They estimate revenue and PAT CAGR of 18.1% and 36.6% respectively over FY22-24.
- Cummins India: HDFC Securities maintains its ‘Buy’ rating on this engine equipment manufacturer with a target price of Rs 1,597, indicating an upside of 18.8%. In Q2FY23, the company’s net profit rose 20.9% YoY to Rs 267.3 crore (beating brokerage’s estimates by 12.7%) and revenue grew 13.1% YoY (beating brokerage’s estimates by 10%).
Analysts Anuj Upadhyay and Hinal Choudhary see a lot of headroom for the firm to grow on the back of a strong demand environment, both in domestic and export markets. They say, “Demand is especially strong in the power-gen segment where end markets like pharma, biotech, commercial realty, manufacturing and data centres are driving growth.”
Upadhyay and Choudhary expect Cummins’ margins to expand, given the price hikes and softening commodity prices amid a strong demand environment. They see the company’s gross margin rising by 400 bps to 35-36% in 18-24 months. The analysts expect the firm’s revenue to grow at a CAGR of 13.6% over FY22-25.
- Elecon Engineering: Edelweiss maintains its ‘Buy’ rating on this industrial machinery company with a target price of Rs 480. This implies an upside of 6.6%. In Q2FY23, the company’s net profit grew 82.3% YoY to Rs 64.5 crore and revenue rose 21.5% YoY to Rs 296 crore.
Analyst Himanshu Yadav remains positive on its growth prospects given the strong order enquiries, robust order book and rising margin trend. He added that the gear segment was the key driver of growth in Q2 and will continue to remain a growth lever in the coming quarters. The firm’s order book stands at Rs 714 crore, including gear segment’s orders at Rs 602 crore.
Yadav believes that the company’s margins will continue to improve on the back of a better product mix and supply chain improvements. “Margin guidance of 22% provides increased confidence in bottom-line growth,” he said. He also sees Elecon raising its revenue growth guidance for FY23 as positive. The analyst expects the firm’s revenue to grow at a CAGR of 24.5% over FY22-24.
- APL Apollo Tubes: Axis Direct retains its ‘Buy’ rating on this iron & steel products maker with a target price of Rs 1,200, indicating an upside of 11.3%. In Q2FY23, the company’s net profit rose 14.4% YoY to Rs 150.2 crore and revenue grew 28.7% YoY to Rs 3,969.2 crore.
Analyst Aditya Welekar believes that the company’s performance in Q2 was commendable considering the tough market and volatile steel prices. He says the company focused on maintaining market share and liquidating its high-cost inventory by offering many discounts to distributors. From Q3FY23 onwards, he expects market conditions to improve.
The analyst said, “Going forward, as steel prices stabilise, we expect EBITDA per tonne to improve as discounts to distributors decrease and the Raipur plant ramp-up provides richer EBITDA per tonne in the product mix”.
Welekar expects APL Apollo’s margins and production volume to grow significantly in the coming quarters. He expects the company’s net profit to grow at a CAGR of 24.8% over FY22-25.
- SKF India: ICICI Direct retains its ‘Buy’ call on this ball-bearing manufacturer with a target price of Rs 5,215, indicating an upside of 7.6%. In Q2FY23, the company’s revenue increased by 11.6% YoY to Rs 1,088.4 crore (vs brokerage’s estimate of Rs 1,105.9 crore) and profit increased 32.5% YoY to Rs 155.8 crore (vs brokerage’s estimate of Rs 141.7 crore).
Chirag Shah and Yash Panwar say, “SKF has been making strides towards innovation and research and development and has made significant inroads in rotating equipment performance.” Going forward, they think a recovery in commercial vehicles and the upcoming e-market should benefit the company. The analysts remain optimistic on the back of shifting focus towards indigenisation of industrial bearings, strong traction from railways, and increasing presence in tier-3 cities.
Note: These recommendations are from various analysts and are not recommendations by Trendlyne.
(You can find all analyst picks here)
