CG Power Share Price Gains 6% Even As Profit Falls In Q2—Here's Why

CG Power & Industrial Solutions Ltd.'s share price gained 6%, snapping a two-day fall on Tuesday, even as its net profit fell in the second quarter on account of higher raw material costs.

The company reported a 9% year-on-year fall in the net profit to Rs 220 crore in the quarter ended Sept. 30, 2024, according to an exchange filing. Revenue during the period rose 21% to Rs 2,413 crore, while Ebitda margin contracted to 12.2% from 15.4% a year ago.

However, Nuvama said that the second-quarter results were not as bad as they seem, with the company having Rs 3,500 crore in QIP fundraising on the cards. It said, "As CGPIL transitions from being a free cash flow generation engine to a capital allocation engine, key triggers would be operating margin recovery in the industrials segment from the second half of fiscal 2025 and the timely setup of proposed capacity expansion of motors in the next 12 months, transformers (FY25-end), and switchgears (next 12M)."

Railway propulsion opportunity of Rs 2,000 crore plus from fiscal 2026-2027 onwards and foraying into new-age areas (OSAT, Kavach, etc) and newer-end segments (desalination, ESL orders, biogas, ethanol, etc.) are the other key variables for the stock hereon.

The brokerage has a 'buy' rating for the stock with a higher target price of Rs 895 from Rs 820. The new target implies 15.4% upside.

Shares of the company rose as much as 6% to Rs 822.10 apiece. The stock pared gains to trade 1.2% higher at Rs 784.85 apiece as of 10:37 a.m. This compares to a 0.4% decline in the NSE Nifty 50 Index.

The stock has risen 72.83% on a year-to-date basis and 101.38% in the last 12 months. Total traded volume so far in the day stood at 1.58 times its 30-day average. The relative strength index was at 50.99.

Out of the eight analysts tracking the company, five maintain a 'buy' rating and three suggest a 'sell,' according to Bloomberg data. The average 12-month consensus price target implies a downside of 7.3%.