This Pump Manufacturing Small Cap Stock Surges By 154.08% Gets A Buy

The stock price of Kirloskar Brothers Limited has rallied by 154.08% in 3-years. The company was established in 1888 and incorporated in 1920, is headquartered in Pune. It is the flagship company of the $2.5 billion Kirloskar Group and is a small cap company.

A leading stock broking firm, Sharekahn suggests that the share price of Kirloskar Brothers Limited will grow by roughly 30%. The suggested target price is Rs 356 per share and brokerage has given a positive view about it.

Kirloaskar Brothers Limited has experience of over 130 years to engineer, manufacture and develop a range of leading-edge solutions for total fluidity management. It is a market leader in fluid management, it provides fluid management solutions for large infrastructure projects in the areas of water supply, power plants, irrigation, oil & gas and marine & defence. The company engineers and manufactures industrial & petrochemical, agriculture & domestic pumps, valves and hydro turbines. It has grown to support the needs of the domestic as well as global economy with presence in across 80 countries and 6 continents. Its current market capitalisation is Rs 2,855.94 crore.

Order book
The company's Q3FY23 standalone order book (made-to-order and engineered-to-order products) including exports stands at Rs. 1,922 crore (up 11%). According to the brokerage report, "The company is in a transformation phase, boosted by strong underlying demand from key industries, turnaround of the overseas business, and expansion of its services portfolio. The company is successfully leveraging its brand and presence in multiple industries to gain from recovery in key overseas markets, which is reflected in its international order book jumping from GBP 52 million (Rs. 520 crore) to GBP 84 million (Rs. 840 crore) as of 9MFY2023. On the domestic front, a favourable demand environment from irrigation, water management, power, building and construction, industrials, and oil and gas among others bodes well for its future growth."

Potential upside
Improvement seen in the EPC business was reported by the broking firm. "Prudent reduction in exposure to low-margin and working capital-intensive EPC business has improved working capital cycle and cash flows. We believe declining commodity prices, improvement in global supply chain, sustained earnings recovery in the international business, and increasing share of services would lead to remarkable growth in margins and earnings. Thus, given strong brand equity and multiple growth triggers, we initiate viewpoint coverage on the stock with an upside potential of 30%"

Valuation
In terms of valuation brokerage report stated that stock price is trading at an attractive valuation besides having a lowdebt/equity ratio. "The company has low debt/ equity of ~0.3x, cash balance of Rs. 146 crore (as of December 2022), short working capital cycle of ~70 days, and improving return ratios. The stock is currently trading at an attractive valuation of ~13/~10x its FY24E/FY25E EPS."

Stock price movement
The stock price of Kirloskar Brothers Limited closed at Rs 359.65, down by 0.10% on intraday basis. In three years time the stock price surged by 154.08 % and in 1 year it was up by 17.67%. Its 52-week high and low is at Rs 424 and Rs 243 per share respectively.

Disclaimer:
The stocks have been picked from the brokerage report of Sharekhan, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.