Sundaram-Clayton Limited; Looking for a Bargain?

This company is engaged in manufacturing of non-ferrous gravity and pressure die casting. Stock has last closed at 1387. Recently stock has made a higher low at 1294.95 compared to previous low at 1010.20 during the month of March after Corona outbreak. It’s a small cap company and according to last closing company stood at a market capitalization of 2807 crore.

On price front company is trading near the lower end of 52 week’s high low range and also stock is staying below 50 and 200 days SMA keeping this stock in down trend on technical front.

This company has yoy sales growth at 23.05% and 5 years annualized sales growth stands at 18.19% which can be considered a good thing.

Return on equity stands at 18.76% and 5 years average return on equity stands at 17.85% and can be considered good.

Debt to equity ratio stands near 3.29 and interest coverage stands at 2.16 times. Leverage ratios are not very attractive and one must be cautious before taking any investment decision in a company having higher debts and lower interest coverage ratio. But negative impact of these ratios can be eliminated in some extent with higher sales growth as long as sales keeps rising there is potential for the company to improve on this front.

Company’s EPS (TTM) stands at 206.91 and PE ratio stands at 6.56. Since 2012 this company has traded with a PE multiplier of 39.90 on the upper side and 4.10 on lower side and median PE stands at 20.6. In last one year this company has traded at a PE multiplier of 12.30 on the higher end and 5.4 on the lower end. Median of it’s 1 year stands at 10.20.

Conclusion: Company is having good sales growth and attractive return on equity and return of capital employed but debt to equity ratio and interest ratios are two major concerns. On valuation front company is currently trading just 6.56 times of its earnings and having 1 year PE median at 10.20 and making it a bargain buying. One can look for investment opportunity in this stock with a view of mean reversion to it’s PE median. If it reverts back to its 1 year PE median standing at 10.20 then it will easily reach a price target of 2000-2100 provided if we don’t see any dramatic change in its earnings.

However it's a low volume counter and there is always risk involved in investing in stocks thus buying in small proportion with the amount that you can afford to take risk of can be good idea. Promotors holding in this stock stands at 75% that makes it an attractive bet.

Recommendation: one can start accumulation with small quantity from current levels and can keep on adding during any deeps around 1000  for a price target of 2000-2100 in 6 months to 1 year. 

While investing keep in mind…                                     

1       Never put all your eggs in single basket                            

2       You can be right dead right; but you must survive        

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