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DRChoksey Research Report
The acquisition allows Pitti Engineering Ltd. to expand its presence in South India, increase its production capacity, enter new sectors, and gain new customers.
This move is seen as a step towards enhancing operational strength resulting in improved Ebitda margins and broadening market penetration for Pitti Engineering by achieving a 12.0-13.0% market share.
We believe the acquisition will bring in new customers, create synergies in sales and marketing, and enable Pitti Engineering to sell its existing product portfolio to these new customers, thereby enhancing market penetration and revenue streams.
We expect the revenues/ Ebitda/profit after tax to grow at a compound annual growth rate of 20.4%/ 23.8%/ 39.0%, respectively, over FY23-26E led by the healthy growth in the organic business driven by its order book and also supported by the inorganic synergies.
Pitti Engineering is currently trading at 31.2 times/21.1 times its FY24E/FY25E earnings per share.
We maintain our price/earning multiple of 22.0 times to FY26E EPS of Rs 49.2 (Rs 46.7 previously), as we like the prospects of the acquired business and the synergies that can drive the Ebitda margins on a consolidated basis.
We assign a target price of Rs 1,083 per share (Rs 1,027 per share previously), with a 50.0% upside from current levels, to reflect improved scale and the company's plans to reduce debt. Accordingly, we maintain a Buy rating on the shares of Pitti Engineering.
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