Rs 10,000 turn into Rs 2 lakh in just 5 years; buy this auto small cap stock under Rs 100 and gain 60%

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Published: May 9, 2018 12:43:19 PM

This small-cap stock had risen more than 1800% in less than five years turning a sum of Rs 10,000 nearly into Rs 2 lakh. Edelweiss Broking has said that diversification in both client and product in near to medium term period will drive growth for the company.

Photo for representational purposes only. (Image: PTI)

Indian equities have seen over a month of a continuous upmove from the last week of March 2018 on the back of better-than-expected Q4 results, also recovering from the downturn caused by global sell-off, high volatility, jittery over LTCG tax on equity, trade war between US and China and India’s biggest banking fraud erupting at nation’s second-largest bank PNB. On a looking at a longer stretch of five years, the domestic stock markets have grown relatively well as compared to China and Japan with the key equity indices logging a gain of more than 70%. In the same time under review, automobile benchmark index Nifty Auto has vastly outperformed the headline indices posting a surge of nearly 140%.

Shares of the small-cap auto firm Rico Auto Industries Ltd (RAIL) have returned multi-fold in less than five years. The stock of Rico Auto Industries Ltd had risen as much as 1800% to Rs 81.85 as on 8 May 2018 from a share price level of Rs 4.3 as on 20 August 2018 on NSE. A sum of Rs 10,000 invested in the shares of Rico Auto Industries Ltd at a price of Rs 4.3 per equity share has turned into Rs 1,90,349 (Rs 1.9 lakh). Over the course of last five years, Rico Auto Industries Ltd has distributed a collective dividend of Rs 5 per equity share of face value Re 1.

The research and brokerage firm Edelweiss Broking Ltd has given a buy rating to the stock of Rico Auto Industries Ltd with a target price of Rs 125 which implies an upside of 53% from the current market price (Rs 81.85) and an upside of 60% from the recommendation price (Rs 78). “We value the stock at a 2-year forward PE multiple of 15x based on a healthy 20-21% RoCE and ~12.4% EBIDTA margin on FY20E. We recommend BUY with a TP of Rs 125,” Edelweiss Broking said in a research report.

Interestingly, in the bull case scenario, Edelweiss Broking has valued Rico Auto Industries Ltd at a 2-year forward PE multiple of 18x, which yields a target price of Rs 140 (upside of about 71% from the CMP). Over the past two fiscals, Rico Auto Industries Ltd has focussed on diversifying across segments in the automobile industry. Until 4-5 years ago, the Indian two-wheeler industry supported little less than two-thirds of company’s business and Hero Honda was its main customer. However, the Hero and Honda split prompted RAIL to diversify its offerings and clientele, Edelweiss Broking said further.

Disclaimer: Views and recommendations given in this section are the brokerage firms’ own and do not represent those of www.financialexpress.com. Please consult your financial adviser before taking any position in the stock mentioned.

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