Auto Components News

Multubagger debt-free stock is 71% away from 52-week-high: Should you buy?

With a market worth of 43,443.82 crore, Schaeffler India Ltd. is a large-cap corporation that operates in the automotive and auto component industries. Under the brand names INA, the firm produces a variety of needle roller bearings and components for shift systems, valve trains, chain drive systems, and front accessory drive systems. Additionally, the firm manufactures dual mass flywheels and clutch systems for tractors, light commercial vehicles, heavy commercial vehicles, and passenger automobiles under the LuK brand. With four manufacturing facilities and 11 sales offices, Schaeffler has a sizable footprint in India thanks to the three well-known brand names FAG, INA, and LuK. According to data from Value Research, the company is now debt-free. Following the release of Q1FY23 earnings, the brokerage firm Sharekhan assigned the shares of Schaeffler India a hold recommendation with a target price of Rs. 2,800.

Sharekhan has said in a note that “Schaeffler India Limited (SIL) reported another strong quarter, beating our estimates on all fronts, driven by robust growth across its business verticals. Revenues, EBITDA and PAT beat were ahead of estimates by 6.2%, 7.4% and 7% respectively. Overall, the company continues to maintain its sales and profitability growth. Revenue, EBITDA, and PAT grew by 41.8% y-o-y, 55.4% y-o-y, and 64.5% y-o-y, respectively, in Q2CY22. SIL’s sales mix remains robust with automotive, industrial, and exports contributing 48%, 37%, and 16%, respectively, during the quarter. EBITDA margin contracted 130bps q-o-q to 18.4% in Q2, on back of commodity price inflation. The company’s management has given a positive outlook for its business, led by volume growth across its verticals. SIL would benefit from the industrial and automobile aftermarket segments, strong growth traction in export markets, and better prospects for the bearings business. In terms of valuation, the stock is trading at premium to its historical average at a P/E of 36x and EV/EBITDA of 23x its CY2023E estimates.”

The brokerage has claimed that “SIL has been consistently outperforming the industry’s growth rate, driven by its technological edge and established relationships with leading OEMs/clients in India and globally. After a dip in performance led by COVID-induced lockdown in Q2CY2020, the company’s performance has improved steadily, aided by a strong recovery in the automotive segment and industrial segment. Exports continue to do well and contributed ~16% to revenue in Q2CY22. We expect a robust performance by the company going forward, driven by normalisation of economic activity, improvement in content per vehicle, strong growth in the wind power and railways businesses, and launch of new products in the aftermarket segment. We expect its earnings to report a 33.6% CAGR during CY2021-CY2023E, driven by a 28% revenue CAGR and a 110-bps improvement in EBITDA margin from 17.5% in CY2021 to 18.6% in CY2023E. In terms of valuation, the stock is trading at a premium to its historical average at a P/E of 36x and EV/EBITDA of 23x its CY2023E estimates. Given limited upside and expensive valuation, we downgrade the rating to Hold with a revised PT of Rs2,800.”

On the NSE, the stock closed today at 2,770.00 apiece, up by 7.18% from its previous close of 2,584.45. The stock had touched a 52-week-high of 9,700.00 on 18-January-22 and touched a 52-week-low of 1,598.00 on 16-February-22 which indicates that at the current share price the stock is trading 71.44% below the 52-week-high and 73.34% above the 52-week-low. In the last 1 year, the stock has delivered a multibagger return of 101.80% and on a YTD basis, the stock has surged 51.36% so far in 2022.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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