Axis Securities, in a recent report, has initiated coverage on Pitti Engineering Limited (PEL) with a ‘buy’ recommendation and a target price of ₹915, indicating a potential upside of 31%. The brokerage highlighted key factors supporting its recommendation:
- Increasing Capacity: PEL has been actively enhancing its capacity, contributing to its growth prospects.
- Growing Share of Value-Added Products: The company’s focus on value-added products is viewed positively, contributing to enhanced profitability.
- Expanding Global Footprints: PEL’s global expansion is identified as a strength that augments its growth potential.
Financial Projections: Axis Securities projects PEL’s revenue to grow at a Compound Annual Growth Rate (CAGR) of 13% to reach ₹1,588 crore by FY26. Operational improvements are expected, with EBITDA projected to grow at a 13% CAGR to ₹258 crore by FY26. The brokerage anticipates cumulative profitability to grow at a CAGR of 38% by FY26, reaching ₹154 crore. Operational margin expansion is expected, reaching 16.2% by FY26, indicating a 240 basis points improvement. Additionally, a combined strategic operation is predicted to enhance PEL’s Return on Equity (ROE) and Return on Capital Employed (ROCE) to 25.8% and 26.7%, respectively, by FY26.
Stock Performance: PEL’s stock has demonstrated strong performance, surging 116% in the last year and over 130% in 2023 YTD. It has gained over 191% from its 52-week low of ₹256.80, hitting a record high of ₹748 on December 5.
Company Background: Founded in 1983, Pitti Engineering is recognized as India’s largest manufacturer of electrical sheet laminations, motor cores, sub-assemblies, die-cast rotors, and machined components. The company specializes in manufacturing value-added motor/generator sub-assemblies.
Investment Rationale: Axis Securities highlighted the potential of value-added products to yield higher realizations, contributing to the company’s profitability improvement. The firm also noted that PEL’s order book significantly improved in FY23, backed by a diversified product basket and robust demand from the domestic and international markets. Additionally, the ongoing merger of Pitti Castings and potential acquisitions are expected to further enhance PEL’s market share and sales volume.
The ‘buy’ recommendation underscores Axis Securities’ positive outlook on Pitti Engineering’s growth prospects, supported by its strategic initiatives and financial performance.
