This small-cap stock turned ₹1 lakh into ₹3.5 lakh in just a year; should you invest now?

Small-cap stock Centum Electronics' share price has posted multibagger returns in the long term - last 1,3 and 5 years.

The stock has soared 254 percent in the last 1 year from ₹567.95. Meanwhile, it has rallied 364 percent in the last 3 years and 416 percent in the last 5 years.

An investment of ₹1 lakh in this stock a year ago would have turned into ₹3.54 lakh today. Furthermore, the same investment 3 and 5 years ago would have resulted in ₹4.64 lakh and ₹5.16 lakh, respectively.

Centum was founded in 1994 in Bangalore, India. Since then, Centum has rapidly grown into a diversified electronics company with operations in North America, EMEA and Asia. The company offers a broad range of products and services across different industry segments. It has continuously invested in strengthening its design & product development capabilities while developing deep domain knowledge in the segments it operates in. 

Centum has also established truly world-class manufacturing facilities with cutting-edge infrastructure as well as a global supply chain capable of delivering products with high quality and reliability.

READ HERE: How Indian stock market envision PM Modi's dream of 'Viksit Bharat' by 2047?

Just in 2024 year-to-date (YTD), the stock has soared 49 percent, hitting its record high of ₹2,011.40 in intra-day deals today, February 27, 2024. With this surge, the stock has already skyrocketed almost 305 percent from its 52-week low of ₹497, hit on March 14, 2023.

February is the second straight month of gain with the stock advancing 20.6 percent so far after a 19.35 percent rise in January. However, it fell 8 percent in December last year.

This notable uptrend reflects the strong market interest and positive sentiment for the stock, signaling a record-breaking performance for the company in the current market conditions.

READ HERE: IT index outperforms Nifty in 2024 but is all really well with the sector?

Earnings

In the December quarter, Centum Electronics posted a net profit of ₹7.25 crore as against a loss of ₹9.67 crore in the same period last year. Meanwhile, its revenue rose 71.5 percent to ₹176.30 crore in the quarter under review from ₹102.80 crore in the same quarter last year.

The selling, general and administrative expenses rose by 6.94 percent QoQ and 13.03 percent YoY. Also, its operating income jumped 111.15 percent QoQ and a massive 1724.12 percent YoY.

Brokerage views

In a recent note, domestic brokerage house Ashika Institutional Equity Research (Ashika) initiated coverage on the stock with a ‘buy’ call and a target price of ₹2,475, indicating an upside of over 28 percent.

READ HERE: Cello World shares jump as Motilal Oswal initiates coverage, sees 31% upside

The brokerage noted that the Global Electronics System Design and Manufacturing (ESDM) market is expected to clock 5.4 percent CAGR over CY21-26E and reach $1,145 bn size compared to 3.5 percent growth over CY16-21. Meanwhile, the Indian ESDM market is likely to grow at a much higher rate of 32.5 percent over FY22-27E and is likely to quadruple to ₹5.99 lakh crore by FY27E from the current level of ₹1.46 lakh crore, it stated.

As per the brokerage, China+1, supply chain localisation, favourable government policies i.e. PLI, SPECS, DLI and EMC 2.0, Atmanirbhar Bharat, import substitution, cost competitiveness, and export focus have been supporting the rapid growth of the Indian ESDM sector.

"Centum Electronics is well-placed to deliver strong revenue and earnings growth in the coming period owing to its presence across key ESDM end-user industries, designing and manufacturing capabilities, and proven execution track record," it said.

READ HERE: Nova Agritech shares give 70% return to allottees within one month of listing

It further pointed out that Centum’s revenue mix comprised of three unique verticals i.e., EMS, BTS, and ER&D, which account for 39 percent, 29 percent, and 32 percent respectively of total revenue. In light of capabilities, order backlog, and multiple industry tailwinds, Ashika believes all these verticals are well-placed to witness strong revenue growth in the coming period.

"We expect Centum’s consolidated revenue and EBITDA to clock 20 percent and 36 percent CAGR, respectively over FY23-27E along with margin expansion, primarily on the back of improvement in subsidiary operation, increased focus, and orders from high-margin verticals and strategic industries, where the company is having niche expertise and unique offerings. We believe the stock is reasonably valued vs other ESDM players and expect a potential re-rating once the margin issues are addressed at the subsidiary level," said Ashika.

READ HERE: Whirlpool Of India's share price falls 6% as Jefferies downgrades stock

Key risks, as per the brokerage, are:

▪ Delay in government’s spending for space and defence spend programs due to changes in policies.

▪ Demand slowdown and unavailability/inadequate availability of raw materials due to geo-political issues.

▪ Payment delays and increase in working capital.

▪ Client and geographic concentration risk.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.