HDFC Securities has recommended "buy" on PPAP Automotive for 2-3 quarters for a target of Rs 380 and Rs 408. The stock closed at Rs 339.05 on Friday. Established in 1978, PPAP Automotive Ltd. (PPAP) is into the business of automobile sealing systems and is the principal manufacturer of specialized profiles and extruded products in India, supplying to all the major original equipment manufacturers (OEMs).It is the single biggest supplier of automobile sealing systems to Maruti Suzuki, Honda Cars, General Motors, Toyota, Renault Nissan, Tata Motors and M&M, the brokerage said.
"Improving road infrastructure and the increasing shift to road travel would lead to higher demand for passenger vehicles. Strong growth seen in demand of Maruti vehicles which account for around 50 per cent of PPAP's revenues would lead to robust demand for the company's products," HDFC Securities said in a note. Further, the addition of new clients like SML Isuzu and Hyundai could boost the revenue growth of PPAP Automotive in the coming years, the brokerage added.
Here is what the HDFC Securities report on PPAP Automotive says:
The company has completed all its major capex plans and established/shifted its plants near to its client's plants. As the utilization of these new facilities ramps up, revenues would keep rising. Working capital cycle is also likely to reduce led by lower inventory levels and shorter lead time. With access to global technology and leadership in sealing systems we expect a strong growth in topline and margin expansion in the coming years.
At CMP of Rs. 338 the stock quotes at 12x FY19E EPS. We feel investors could buy the stock at the CMP and add on dips to Rs. 307-311 band ( around 11x FY19E EPS) for sequential targets of Rs. 380 (13.5x FY19E EPS) and Rs. 408 (14.5x FY19E EPS) in 2-3 quarters.
As of 11:32 am, PPAP Automotive shares traded 7.34 per cent higher at Rs 363.95 compared to 0.27 per cent gain in the broader Nifty.
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