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.
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.
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