Tube Investments hits 6 month-high; zooms 29% in 2 weeks on strong outlook

Shares of Tube Investments of India (TII) hit a six month-high of Rs 1,948.80 on rallying 7 per cent on the BSE in Wednesday trade. The scrip of the auto ancillary company was trading at its highest level since January 2022. It had hit a 52-week high of Rs 2,021 on January 4, 2022.
In the past two weeks, TII has outperformed the market by zooming 29 per cent as compared to a 3 per cent rise in the S&P BSE Sensex, on the back of a strong business outlook. 

TII is a flagship company of the Murugappa group.  It is one of the leading product manufactures for major industries such as Automotive, Railway, Construction, Mining, etc. The company is also the second largest player in bicycle business.

Despite inflated raw material cost, TII's margins improved by 128 bps QoQ in March quarter (Q4FY22) owing to superior product mix, lean productivity and cost pass through benefit. The company’s revenue grew by 25 per cent year on year (YoY), largely driven by double digit growth from the export market and strong growth from the CG power and Industrials.

TII’s entry into 3W electric manufacturing will mark the group’s foray into automobile manufacturer from an ancillary player. Due to supply shortage, the launch has been extended to Q2FY23.

Analysts at Geojit Financial Services expect TII's diversified approach to de-risk from auto sector and concentrate more on other industrial segments (like railways & powers through the inorganic form) to support long-term revenue visibility. Additionally, government’s PLI scheme and China plus strategy by major international OEMs is likely to bring incremental growth for medium term.

In addition, respite in commodity price and gradual recovery in the 2W space will bring some comfort in valuation, the brokerage said in a stock update. The stock, however, was trading above target price of Rs 1,768 per share.

On June 23, 2022, Motilal Oswal Financial Services initiated coverage on TIL with a Buy rating and a target price of around Rs 1,900. "TII offers diversified revenue streams, with strong growth in the core business (around 25 per cent CAGR), ramp-up in CG Power and optionality of new businesses incubated under TI-2 strategy," the brokerage said.

At a consolidated level, analysts at the brokerage estimate revenue/EBITDA/PAT CAGR of 15 per cent/20 per cent/20 per cent over FY22-25, respectively, on a high base of FY22 where CG Power delivered robust performance.

“We estimate consolidated RoCE to improve by 470bp to 37.1 per cent by FY25. We are not building in for any benefit from new ventures under TI-2 (except Lens business, which is part of Others) in our consolidated performance,” the brokerage said.