Super Stock 2022 with Anil Singhvi: This auto ancillary stock has potential to grow over 46% - know triggers here

In a special edition of Super Stock 2022, Zee Business Managing Editor Anil Singhvi lists out three triggers for this auto ancillary stock for bumper returns going forward. These three triggers of the company are - strong growth outlook, robust earnings and attracting valuations. 

While explaining about the auto ancillary stock – Bharat Gears, a leader in the manufacturing of gears, senior research analyst Varun Dubey says that this 5-decade old company has a strong list of clientele and besides, has reported robust earnings numbers in the first half of fiscal 2022 than FY19. 

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The financial year 2018-19 had been the best year in terms of earnings growth for the company, the managing editor mentions. The company has reported 76 per cent of revenue growth in H1FY22, which is far better than over FY19 and it also has been the best in 10 years so far, Dubey adds. 

In terms of valuations, Dubey points out, the current PE is at 8.4x, price to book value 1.8 and EV/EBITDA is around 4.2, similarly, market-cap to sales is at 0.42 per cent. He further stated that the FY21 cash flows from operations stood at Rs 59 cr, which is 37 per cent of the current marker cap. 

The company has been in process of reducing the debt as in the last 2.5 years it has repaid around Rs 40 crore debt, which senior research analyst terms as the biggest bet for the company. 

Being a leader in the gear business, Singhvi mentions the growth in earnings is visible mainly due to fading chip shortage issues and auto and auto ancillary stocks are slowly improving. He added that the auto ancillary company is done with capex and prior to that they were witnessing pressure on the balance sheet. 

Due to pressure on the balance sheet, the profit was low, however, the momentum in debt repayment will increase the profitability of Bharat Gears, Singhvi adds.  

The managing editor sees the stock growing to Rs 220 to 250 per share going forward on the back of multiple triggers. 

Similarly, the market analyst Simi Bhaumik believes, the auto ancillary stock should be played in the portfolio and expects it would soon reach Rs 175-180 levels, however, once it breaches Rs 185 levels, which is also its 52-week high, the stock would move further to Rs 200-210 levels in 3-6 months.  

The stock on Thursday gained 13.5 per cent to touch the day’s high level of Rs 178.35 per share on the BSE. At around 11:40 am, the stock is up over 9 per cent to 171.85 per share as compared to a 1.39 per cent fall in the S&P BSE Sensex.