This Small-cap Stock Dou­bled Wealth in 16 Months

The Economic Times - - Smart - Mar­ket In­tel­li­gence

timesin­ter­ ETMar­ 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

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