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Rally in this stock enters 5th year. Can it still be a buy?

The company's market share in GLE segment stood at 55 per cent.

, ETMarkets.com|
Last Updated: Feb 13, 2020, 01.14 PM IST
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In a recent conference call, MD Tarak Patel said GLE still has the biggest order backlog of 50 per cent. About 20 per cent of this backlog is for heavy engineering orders and the rest for proprietary products
NEW DELHI: This stock surged 58 per cent in 2019, 43 per cent in 2018 and 57 per cent in 2017, 76 per cent in 2016, and a whopping 3,267 per cent in last 10 years.

Up 232 per cent from its 52-week low, shares of this debt-free and regular dividend payer are now up 81 per cent so far in 2020, breaching analysts’ 12-month target prices fast enough and leaving little scope for further upside.

The stock is GMM Pfaudler.

“Its debt-free status, healthy operating cash flow with strong prospects and profitability lead us to retain our ‘buy’ rating and roll our price target to Rs 3,033,” said Anand Rathi Financial Services on January 24.

This target suggests 10 per cent potential downside for the stock over Thursday's high of Rs 3,398 level.

The company supplies critical process equipment and systems to chemicals and pharmaceutical industries. It is engaged in segments namely glass-lined equipment (GLE), heavy engineering and proprietary products.

In a recent conference call, MD Tarak Patel said GLE still has the biggest order backlog of 50 per cent. About 20 per cent of this backlog is for heavy engineering orders and the rest for proprietary products

Analysts said the domestic GLE market is small, and thus, the company is continuously trying to diversify into the non-GLE segment.

Patel said GLE has an order book of 800 units, which may be enough for the next four to five months. COO Ashok Pillai said the company expects more revenues from the heavy engineering space.

“We have also just recently brought in people from oil and gas, where we are trying to make a big push and there has been sourcing tenders where we have been L1. We have been also registered now with EIS. So, we are hopeful that over the next few months, we will start getting business from these industries,” he said in the conference call.

The company said GLE’s market share rise would stagnate at some point even if there is a lot of replacement demand. It would need to increase other businesses, especially heavy engineering.

The company's market share in GLE segment stood at 55 per cent. The business grew at 30 per cent in the first nine months of FY20. Heavy engineering is a more competitive business and margins are lower than that of GLE.

GLEs have applications in pharmaceutical, chemical, petrochemical, pesticide and food industries. The company designs, manufactures and markets glass-lined reactor vessels, storage tanks, valves and pipe and fittings.

“We believe the strong brand name, sticky client base and superior growth in non-GL deserves a premium valuation. However, the recent run in stock price limits upside from current level. Hence, we maintain our ‘Hold’ rating, with a revised target price of Rs 2,201 by assigning a P/E of 25 times on its FY22E earnings,” BP Wealth said.

The company reported 59.60 per cent rise in profit at Rs 21.10 crore for December quarter on a 26.3 per cent YoY rise in sales at Rs 156 crore.

“It has been an absolute multibagger for those investors, who had purchased the stock in July 2016 at Rs 332 when we first initiated its coverage. Despite being bullish on the stock and the forthcoming growth in the sector, we recommend a cautious stance and advise booking profits to the tune of 15-20 per cent of the holding by long-term investors and clients,” said Progressive Share Brokers.

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