Is Lloyds Engineering Works still a ’buy’ after a 196% rally in 2023? Here’s what Ventura Securities says

Lloyds Engineering Works (formerly Lloyds Steels Industries) saw its shares grow exponentially this year, rewarding its shareholders handsomely. The company shares, which were trading at ₹15.44 apiece at the start of 2023, have risen 196.43% to trade at the current value of ₹45.77.

Founded in 1974, Lloyds Engineering Works (LEWL) is predominantly involved in the development, production, and deployment of robust equipment, machinery, and systems tailored for the hydrocarbon sector, oil and gas, steel plants, power plants, nuclear plant boilers, and comprehensive turnkey projects.

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Domestic brokerage firm Ventura Securities has recently initiated coverage on the stock with a 'buy' rating, setting a target price of ₹71 apiece, which signals an upside potential of 55% for the stock from its recent closing price of ₹45.77.

According to the brokerage, Indian shipyards, both public and private, are operating at full capacity, with order books extending up to a decade. Due to this limited capacity, new shipbuilding orders are anticipated to be directed to Lloyds Engineering Works.

The brokerage expects the company's revenues to grow at a CAGR of 47% to ₹996 crore. This stupendous growth in revenue is expected from higher-order inflow from marine, steel, and special civil engineering projects, its strategic capacity boost for future revenue growth, and its strategic positioning in the infrastructure sector and capex sector, aligning with a government spending surge.

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Ventura expects the company's EBITDA and PAT to grow at a CAGR of 59% and 66% to ₹209 and168 crore, respectively. It prokects EBITDA and PAT margins to increase by 430 and 500 basis points to 21% and 16.8%, respectively. Subsequently, it expects ROE and ROCE to enhance by 610 and 750 basis points to 24.9% and 22.9%, respectively.

The brokerage, in its report, has listed the following key factors:

Resilient Order Book: Lloyds Engineering showcases a formidable order book, standing at ₹921 crore, equivalent to three times the sales projected for FY23. The company anticipates a significant uptick in order inflow, particularly in the Marine and Civil Projects segments, promising not only increased revenue but also higher profit margins.

Bolstering capacities for future growth: The company is strategically enhancing its capacities, demonstrating a forward-thinking approach to foster future growth. Its investment of approximately ₹40 crore in FY23 underscores its confidence in upcoming growth opportunities and its proactive stance in meeting anticipated future demand.

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Innovating through synergy: Lloyds Engineering solidifies its technological prowess and broadens its product portfolio through key collaborations with industry leaders such as The Material Works, Ltd. (TMW), Bhabha Atomic Research Centre (BARC), and TB Global Technologies Ltd. (TBG).

Financial Fortitude: Lloyds Engineering stands as a net cash company with reassuring debt-to-equity ratios, portraying a robust financial position. This financial strength not only underscores the company's stability but also equips it with the flexibility to capitalise on strategic growth opportunities.

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Poised to thrive in the infrastructure and capex sector: The company is strategically positions itself within the infrastructure and capex sector, poised to capitalise on the anticipated upswing in government spending. This alignment with industry trends reflects the company's foresight in tapping into a sector on the rise.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.