Hello Sir,
Hope you are doing well.
Yesterday, we released new stock recommendation for Alpha and Alpha + Members and would like to share with you details on the same.
It’s a leading company and key beneficiary of strong growth in Real Estate segment.
Based on our analysis, the stock looks interesting for the next 3-4 years due to the following reasons:
- In the last 3 years, the company has more than doubled its sales and management is targeting 20-30% sales CAGR for the next few years
- Improvement in product mix resulting in higher margins and ticket size
- Geographical expansion with a plan to go pan India over the longer term
- Improving balance sheet with reduction in net debt and working capital days
- Reasonable valuations and value unlocking through demerger
You can get the new stock recommendation along with other stocks under our coverage by signing up HERE
Key Points about the New Stock Recommendation
- Key beneficiary of strong growth in Real Estate segment
- Strong growth in Sales and PAT – Over the last 4 years, company has recorded 15% + sales CAGR and 20% + PAT CAGR. Management is targeting 20-30% year-over-year growth in sales for the next few years
- Product mix improvement – Company has added a lot of new products in its portfolio. A lot of these are value added products with higher realizations and margins. On the back of the same, management is expecting gradual improvement in EBITDA margins
- Geographical expansion – Company is gradually expanding geographically and aims to go pan India in the long term.
- Balance sheet improvement – Debt equity ratio of the company has reduced from 1+ a few years back to less than 0.2. Similarly, working capital days have reduced from 60-70 to around 40
- Demerger – Company is planning a demerger, and this can act as a major catalyst for value unlocking as the higher margin, higher ROCE business will likely get re-rated to higher valuations
Normally, we don’t like to project numbers 2-3 years down the line. However, based on what the management has shared and our assumptions, we believe the company has the potential to grow its PAT by 50-80% over the next 2-3 years.
Risks – Our investment thesis incorporates assumptions about growth; if the demand doesn’t grow at the expected rate or if the cut-throat competition results in contraction in margins, the company might end up reporting lower numbers than our expectations.
We have assumed exit multiples in the range of 25 times earnings. In case the market attributes lower valuations to the business, the returns can be lower than expectation.
(End)
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/
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