Stock To Buy: Heavy Engineering Stock With A 45% Upside Potential

What is ISGEC Heavy Engineering?

ISGEC Heavy Engineering rank 236 in the ET 500 listing, 220 in the Fortune India 500 listing. The company is into EPC projects, boilers,steel castings, sugar plant and distilleries, air pollution control equipment, contract manufacturing, presses etc. It has a rich global clientele including names like Alstom, Japan, British Petroleum, Lurgi, Foster Wheeler, North America, oshiba, Japan, Fluor, North America, Valeo, France, GM Mexico etc.

Spread over 100 hectares, the company's manufacturing facilities cover a shop floor area of over 120,000 square meters (143520 square yards) with world class manufacturing and testing facilities.

Why to buy the stock of ISGEC Heavy Engineering Ltd?

Sharekhan sees many positives in buying the stock of the company. "Order book at Rs. 7,518 crore is 1.45x its TTM manufacturing and EPC revenue. We expect OPM to be under pressure over the next one to two quarters but expect it to normalise from FY2023 with easing commodity prices and new orders taken by the company have higher contingencies and margins. The demand environment remains buoyant both domestically and overseas, providing healthy order intake visibility," the brokerage has said.

According to Sharekhan, the first half order inflows up 67% y-o-y while order book healthy at 1.45x its TTM manufacturing and EPC revenue.

Upside potential of 45% on the stock

According to the brokerage, the order pipeline remains strong both in domestic and overseas markets, which should lead to healthy order inflow going ahead.

"Moreover, the sale of Philippines plant is a major re-rating trigger. We expect the company's strong order intake till date, positive order inflow outlook, improving execution, and rising operating cash flows to aid in healthy earnings growth for the company. The company is currently trading at a P/E of 11.5x its FY2024E EPS, which is over 40% discount to its one-year average forward PE multiple. Hence, we stay positive and expect an upside of 45%," the brokerage has said.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.