Sharda Motor Industries Ltd - Diwali Muhurat Pick - Sushil Finance

Sharda Motor Industries Ltd (SMIL) - CMP Rs.1048, BUY, Target Rs.1871

- Robust balance sheet and reasonable valuations present a lucrative investment opportunity: SMIL is a zero-debt company with substantial cash on hand. The company has healthy return ratios and manages its working capital efficiently. The company currently trades at substantial discount against robust fundamentals & growth prospects.

- Strong market share and healthy long-term relationships with OEMs to drive the sales going forward: SMIL is a prominent player in the Indian automotive components industry with strong presence in exhaust systems. The company has been supplying exhaust systems to leading OEMs for almost two decades now.

- Exhaust Technology Pvt Ltd (JV) to play a pivotal role for the company going forward: The JV is exclusively for production of exhaust systems for commercial vehicles meeting the new emission standards of BS VI implemented from April 01, 2020. The company's new plant is dedicated towards trucks and buses.

- High value products to drive the top-line growth going forward: The BS VI complied exhaust systems are more sophisticated technologically advanced and thus, there is higher initial cost and cost of ownership. Accordingly, the highly priced BS VI complied exhaust systems will drive the top-line in value terms.

- Long overhang on account of uncertainties due to litigations ended with amicable family settlement: The lingering uncertainties which have been hovering on the business for a long time are now over as the brothers have entered into a memorandum of family settlement which can be a major trigger for the rerating of the stock.

OUTLOOK & VALUATION

SMIL is a leading auto-ancillary company supplying exhaust and suspension systems to major OEMs. The company is well placed to be benefited from implementation of BS VI emission norms which rolled out from April 01, 2020. Further, the JV with Eberspaecher for production of exhaust systems for commercial vehicles is likely to drive the business. This debt-free company holds substantial cash; has healthy return ratios & strong growth prospects. Going forward, we expect company to witness value driven growth and rise in profitability on account of contributions from JV; we expect SMIL to deliver an EPS of Rs.155.9 in FY23; assigning a target multiple of 12x we arrive at a target price of Rs.1,871 showcasing an upside potential of 78.6% with an investment horizon of 18-24 months.

Shares of Sharda Motor Industries Ltd was last trading in BSE at Rs.1257.3 as compared to the previous close of Rs. 1047.75. The total number of shares traded during the day was 16734 in over 1591 trades.

The stock hit an intraday high of Rs. 1257.3 and intraday low of 1071.6. The net turnover during the day was Rs. 20308654.

Source : Equity Bulls

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