This Small-cap Stock Doubled Wealth in 16 Months
timesinternet.in ETMarkets.com: With a consolidated order book of over ₹ 2,400 crore, small-cap pump manufacturing company Kirloskar Brothers has been an excellent performer on the bourses for over a year now, having more than doubled investor wealth in just 16 months.
Analysts are bullish on the stock on expectation of robust earnings growth going forward. The share price of the company surged 129% to ₹ 259.90 as of August 3, 2017 from ₹ 113.50 on March 29, 2016. The benchmark Sensex has risen 29%in the same period. For the q uar t e r e nded June 3 0 , 2 0 1 7 , Kirloskar Brothers reported a net profit of ₹ 5.45 crore against a net loss of ₹ 1.43 crore reported for the corresponding quarter last year.
Gross sales jumped 17.79%year-onyear to ₹ 443.60 crore compared with ₹ 376.61 crore reported for the corresponding quarter last year.
“Margins of the company are likely to improve due to faster project execution and lower provisioning. Aided by a healthy order book, subsidiaries would be more profitable in the next two years. Higher earnings would lead to better valuations. Hence, we retain a ‘buy’ rating with a price target of ₹ 352,” Bhalchandra Shinde, Research Analyst, Anand Rathi, said in a research report.
With ₹ 2,024 crore market capitalisa- HIGHS & LOWS tion, the company has a robust order book. As of June end, the standalone order book stood at ₹ 1,600 crore and the consolidated one at ₹ 2,410 crore. Industry watchers see further improvement in order book going forward. “Good orders are expected in the next two years due to oil and gas capex and a pickup in smart buildings. Further, greater demand for small pumps in solar and agriculture activities should provide an impetus to order flow,” Shinde said.
“With low provisioning and in the absence of one-time costs, the (standalone) margin is expected to expand by 270 basis points to 6.5% in FY18, and by 210 basis points to 8.6% in FY19,” he said.
More-than-expected provisioning and curtailed demand for pump sets are key risks for the business, say analysts.
Established in 1888 and incorporated in 1920, Kirloskar Brothers (KBL) is the flagship company of the $2.1 billion Kirloskar Group.
Analysts expect robust earnings