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KRChoksey Research Report
Investment thesis
We are optimistic about Pitti Engineering Ltd.'s prospects and expect it to capitalise on the upcoming capex cycle in the core sectors and emerging opportunities from sunrise sectors such as renewable energy and electric vehicle, resulting in a robust revenue compound annual growth rate of 24% from FY23- FY25E.
Moreover, we anticipate an improvement in Ebitda margins and a positive trend in Ebitda/tonne.
Pitti Engineering's efforts towards debt reduction and its superior return ratios further add to its positive outlook. The company's manufacturing plants are equipped with advanced technology, which positions it well for growth.
Additionally, its impressive client base spanning various industries and a wide range of product offerings contribute to its potential for continued expansion.
Based on these positive factors, we recommend a 'Buy' rating for the company with a target price of Rs 754, which corresponds to 18 times the estimated earnings per share for FY25.
About the company
Pitti Engineering is India's largest and most renowned manufacturer of electrical sheet metal products, founded in 1983.
It operates fully automated manufacturing facilities in Telangana and Aurangabad and is divided into two primary business segments: Motors and generators, and components.
The company boasts a diverse product portfolio and holds a leading position in assembling large alternators and motors in India. Some of its esteemed clients include GE, Siemens, and Wabtec.
Pitti Engineering's order-book currently stands at Rs 8,230 million and is expected to grow further due to government emphasis on railway development projects and ongoing capex plans from industrial and infrastructure companies.
Pitti Engineering is also a trailblazer in manufacturing traction motor sub-assemblies in India. A significant portion, 33% of its total revenues, comes from exports.
Remarkably, over 50% of Pitti Engineering's revenues are derived from its monopoly business.
An illustrative example of this is Pitti Engineering being the sole supplier for motor assemblies to railways, even though they have multiple approved suppliers for their diesel and electric locomotives.
Regardless of which supplier receives the order, the motors must be supplied by Pitti Engineering.
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