ICICI Securities
Gandhi Special Tubes (Buy)
CMP: ₹378.55
Target: ₹450
Gandhi Special Tubes (GST) reported a healthy performance in Q2FY19 with net sales for the quarter coming in at ₹33.6 crore, up 12.9 per cent y-o-y. Corresponding EBITDA in Q2FY19 was at ₹12.9 crore with subsequent EBITDA margins at 38.3 per cent, flat y-o-y. PAT in Q2FY19 was at ₹10.0 crore, up 15.1 per cent y-o-y. Topline growth of 12.9 per cent can be considered a temporary blip versus about 30 per cent in the last three quarters.
GST holds >20 per cent of market capitalisation in cash on its books. With no substantial capex plans in place amid around 70 per cent capacity utilisation levels, GST intends to share the surplus cash with shareholders through greater dividends and buybacks, going forward.
Valuation: With healthy tractor as well as capital equipment sales domestically, GST is on a healthy growth trajectory with bright prospects, going forward. It has a cash surplus balance sheet and has been generous in sharing the same with shareholders with dividend payout in excess of 35 per cent and share buyback in the past at ₹500/share. We expect the same in future too. We expect sales & PAT to grow at a CAGR of 16.5 per cent and 19.4 per cent, respectively, in FY18-20E.