Stock Outlook- CMP, 52 Week Low & High, Investment Returns
Kennametal India stock last traded at Rs 2,787.75 on 17 November 2022, the share price has fallen 0.34% based on the previous share price. The 52-week high is Rs 2,890 and the 52-week low is Rs 1,462.25, respectively.
In the past 1 week, the shares have fallen 1.39%. In the past 1 Month, the share price moved up by 7.23% and in the past 3 months, the share price moved up by 17.96%, respectively. In the past 1 year, the share price moved up by 81.29%. Over the past 3 years, the share price moved up by 178.8% and in the past 5 years, the share price moved up by 290.8%, respectively.
Muted quarter amid seasonally weak domestic quarter
In Q1FY23, KNM’s revenue grew 13% YoY (flat QoQ) to INR 267 Cr; lower than our est. of INR 292 Cr amid global supply chain constraints and seasonally weak domestic quarter. Revenue from Machining Solution segment (MS; 15% of total) grew strong 25% YoY to INR 37Cr however Hard Metal Products (HMP) segment revenue grew 11% YoY to INR 230 Cr.
Weak margins affected by Machining Solutions segment
Kennametal EBITDA increased just 3% YoY to INR 47 Cr (lower than est. of INR 54 Cr) as gross margins compressed 230bps YoY to 48% due to raw material commodity inflation mainly tungsten carbide; leading to overall compression in EBITDA margins. EBITDA margin declined 160bps YoY to 17.5% during the quarter lower than our est. of 18.5%. EBIT from MS segment declined 12% YoY to INR 3 Cr while HMP segment EBIT grew 8% YoY to INR 44.3 Cr. EBIT margin in HMP segment improved 180bps YoY to 19% while MS segment saw pressure and declined 300bps YoY to 8%. Machining solution division revenue grew by 33% in FY22 as company expanded its customer base, entry into newer markets (like China) with new categories. New Products like 7-axis horizontal machining for industrial and infrastructure applications, 5-axis vertical mill for precision valves for Oil and Gas, tool and cutter grinder for micro tools used for medical equipment etc. were developed. Expansion in Chinese market over last few quarters have resulted in strong revenue growth. However, Covid led lockdown in certain Chinese cities might have affected performance of MS segment in 1QFY23. Employee cost grew 3% while other expenses increased 16% YoY which were well constrained during weak quarter.
Â
Domestic market outlook positive, exports big opportunity
As per management’s recent interaction in its AGM, the domestic market outlook remains robust, and KNM is confident to grow 1.5-2x of manufacturing sector growth rate. KNM is one of the major beneficiaries of impending revival in Automobile sector as it is one of the biggest consumers of its hard metal products. It also recently introduced product offerings in emerging sectors like EV mainly on Hybrid side. Other sectors like Renewable Energy (wind), traditional turbine for Thermal/Hydro have seen pick up in recent months. Demand from Steel sector is showing good traction and KNM is positive on transportation equipment products on Locomotive Railways and Aerospace. Exports is another big opportunity for KNM, with exports revenue doubling every three years driven by its focus on machine solution, expansion in the China market (long term prospects are extremely encouraging) and intercompany exports.
Â
Reaffirming BUY
The Q1FY23 print was tad weaker than expected however we expect company to deliver strong performance in the coming quarters. KNM offers strong growth visibility with strong balance sheet and parentage. “The stock is trading at 29x FY24E PER and 19x FY24E EV/EBITDA. We continue to maintain our BUY rating with a TP of INR 3,384 per share,” the brokerage has said.
Disclaimer
The stock has been picked from the brokerage report of Edelweiss Wealth Research. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.
Â