Emkay Global Financial Services Ltd. initiated a coverage on Shriram Pistons and Rings Ltd. with a 'buy' rating.
The brokerage has set a target price of Rs 2,450 per share, indicating an upside of 70%.
The company's dominant and growing franchise at attractive valuations warranted re-rating, Emkay Global said.
Shares of Shriram Pistons were trading 6.5% higher at Rs 1,537 per share, compared to 0.09% advance in the NSE Nifty 50 at 9:55 a.m.
The stock has risen 190% in the past year, compared to a 49% advance in the Nifty Midcap 150.
Key Levels To Watch
Key support level: Rs 1,410 (two-day low).
Resistance level: Rs 1,730 (two-week high).
Business Outlook
Shriram Pistons has over five decades of experience and presence across segments (two wheelers, passenger vehicles, commercial vehicles, railways, defence), Emkay Global said.
Apart from this, it is the "last man standing" for engine parts. There is extended growth visibility for internal combustion engines amid emerging challenges to electric vehicle penetration, it said.
Shriram Pistons commands a 40–45% market share in core products in IC engines and has over 90% market share in CNG. It enjoys a well-diversified revenue profile between original equipment manufacturers, aftermarkets and exports. The company's revenue growth has outperformed underlying auto production by 7%/10% in the past 10 years/5 years, Emkay Global said.
Its diversification into EV specific and powertrain agnostic components will see a 17% EPS CAGR between FY24 and FY26. Over 20% return on equity warrants 18 times PE multiple from the current 10.7 times PE multiple, according to the brokerage.
Emkay Global estimates Shriram Piston's Ebitda margin to be above 20% for the current financial year.
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