Target: ₹140

CMP:₹112.90

In Q1-FY24, Pennar Industries Ltd (PSL) reported strong financial results. Net sales reached ₹748.90 crore, showing a 7 per cent increase year on year. PBT amounted to ₹29.50 crore, which marked an impressive year-on-year growth of 57.2 per cent. Regarding profitability metrics, the PBT margin for Q1 was 3.9 per cent.

The company is committed to improving this margin by transitioning from lower-margin revenue streams to those that offer higher margins and better capital efficiency. The company’s working capital days stood at 74 days and the company has set a target of reducing working capital days to 72 days by September, indicating a continued focus on improving operational efficiency and liquidity management.

PSLs growth trajectory for the upcoming period is poised to be driven by strategic focal points, notably the PEB division, PGI subsidiary, bodies in white operations, and the expanding industrial components sector, specifically the hydraulics segment.

PSL is currently planning a capex of ₹40 crore towards expanding the Raebareli plant project. The plant is intended to expand the company’s pre-engineered building capacity in the Northern region of India, where the company’s presence and revenue have been limited due to geographic constraints.

We have assessed the stock’s worth using a target price of ₹140, employing a P/E multiple of 8.4x. This assessment is grounded in the projected EPS of ₹16.76 for FY25. These estimations are underpinned by robust order inflows, a diverse client base, and a strategic emphasis on high-margin products.

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