Auto Stocks: Up 17% In One Month! Brokers expect this auto supplement stock to rise another 50%

Shares of the auto parts maker and supplier are down over 29 percent from April 2022 highs, putting the stock in a bear grip. However, brokers have maintained their bullish stance on this meter, seeing over 50 percent upside from current levels.

With a market capitalization in excess of Rs 5,500 crore, the shares are trading above the short-term moving averages of 5, 10, 20, 50,100 and 200 DMA. The stock has returned over 17 percent over the past month. It had hit a 52-week high of Rs.494.60 on April 29, 2022.

said the company aims to build a larger base in the domestic auto LED market. It is integrating its lighting and plastics business skills to offer assembly of headlights for cars and trucks and to expand its 4W business, the broker noted.

Varroc Engineering plans to address the four-wheel electric vehicle (EV) market – both domestic and international – by offering helical gears, reduction shafts, etc. By doing so, it would mitigate the risk of the metal valve business being disrupted by the transition to electric vehicles, he said.

The brokerage firm has maintained a ‘buy’ rating on the stock with a target price of Rs.529, signaling potential upside of 51 percent from the previous close of Rs.348.65 on Friday.

“The Company looks forward to selling its JV interest in China in the future as it restructures the business and increases its focus on India, apart from receiving additional funds to acquire growth or technological capabilities. Also, it is open to selling its stake in the Italian oil and gas forging business to refocus on the EBU and polymer parts business,” it added.

Another broker, Khambatta Securities, has upgraded the stock to a buy from a hold with a price target of Rs 450. It expects EBITDA margins to improve from 7 percent in 2Q-3Q FY22 to 7.3 percent in FY23 and further to 8.1 percent in FY24, driven by low double-digit EBITDA in the Indian business and operational Leverage through improved capacity utilization at global 2W lighting operation and electronics plant in Romania.

According to Trendlyne, Varroc Engineering has a consensus recommendation of eight analysts to buy. The company has low debt and is increasingly generating cash from operations.

Varroc Engineering reported a net loss of Rs.284.96 crore for the quarter ended March 2022 versus a net loss of Rs.144.32 crore for the same quarter of FY21. Operating revenue for the March quarter of FY22 was Rs. 1,652 crore compared to Rs. 1,504.30 crore in the same quarter last year.

The company has 12 production sites for passenger cars in the Czech Republic, China, India, Mexico, Morocco, Turkey, Poland, Brazil and Romania as well as two production sites for two-wheelers.

(Disclaimer: Experts’ recommendations, suggestions, views and opinions are their own. These do not represent the views of Economic Times.)

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