Multibagger Shivalik Bimetal Controls zooms 2271% in 4 years: Should you buy?

Shivalik Bimetal Controls has proven to be a stellar investment for long-term holders, with its stock price skyrocketing by an astonishing 2271 percent over the past four years. In June 2020, the stock was valued at ₹24.7, and it has since surged to approximately ₹585.65. This tremendous growth underscores Shivalik's ability to consistently enhance its value, positioning it as a standout performer among penny stocks and highlighting its potential as a lucrative investment opportunity.

However, recently, the stock has exhibited considerable volatility. It has declined by 5 percent over the last one year but has shown a 7 percent increase in 2024 year-to-date.

It has jumped almost 17 percent in 2024 YTD, after a 12 percent fall in May. Before that, it rose 10.6 percent in April but shed 3.8 percent and 8.3 percent in March and February, respectively. In January 2024, the stock rose 7 percent.

The stock hit its peak of ₹730 on July 17, 2023, and its 52-week low of ₹460.90 on June 4, 2024. Currently trading at ₹585.65, the stock is 20 percent away from its peak but has advanced 27 percent from its year low.

Despite the recent volatility in the stock, brokerage house JM Financial has initiated coverage on Shivalik Bimetal Controls with a buy rating and a target price of ₹730, implying a 20 percent upside potential. JM Financial believes that Shivalik, as a niche player, is well-positioned to capitalize on manufacturing opportunities.

The brokerage noted that Shivalik Bimetal, predominantly a bimetal and electrical contacts manufacturer, ventured into the shunt resistor business in 2014-15. It has since gained dominance in the domestic market and is now poised to further expand its export opportunities, with capital expenditure already completed and capacity in place. Shivalik is strategically positioned to capitalize on three key opportunities: the switchgear industry, smart metering, and electric vehicles (EVs).

The company also aims to increase its revenue contribution from electrical contacts from the current 10-11 percent through inorganic expansion and by tapping into global markets. Additionally, Shivalik Bimetal Controls (SBCL) benefits from a product-linked incentive (PLI) scheme for shunts and is continually exploring new industries for its shunt applications, including mobile, telecom, and renewables.

JM Financial's coverage and optimistic target price reflect confidence in Shivalik's growth prospects, driven by its strategic ventures and market expansion plans.

Overall, the brokerage expects Shivalik Bimetal Controls to achieve a compound annual growth rate (CAGR) of 25 percent in Revenue, 29 percent in EBITDA, and 29 percent in PAT over FY24-26E. They project a Return on Capital Employed (RoCE) of 30.4 percent and a Return on Equity (RoE) of 24.1 percent by FY26E.

The brokerage further highlighted that a majority of Shivalik Bimetal Controls' sales are customized, with production parameters and equipment tailored accordingly. Customers typically invest in the tooling kit, and approximately 75 percent of the company's products are custom-made for specific customer requirements. Remarkably, Shivalik has maintained strong customer loyalty, as no client has left the company in the last decade. This long-term customer retention underscores the company's reputation for reliability and quality in its specialized manufacturing offerings, it noted.

JM expects Shivalik’s shunt revenue will see a CAGR of 30 percent over FY24-26E with an EBITDA margin of 23 percent in FY25 and 24.2 percent in FY26. For the Electrical contacts segment, JM anticipates a robust CAGR of 37 percent over FY24-26E for this segment, with EBITDA margins projected to be around 11.5 percent to 12 percent. Meanwhile, in the bimetal segment, JM estimates export opportunities to drive growth, projecting an overall Compound Annual Growth Rate (CAGR) of 17 percent over FY24-26E. They anticipate the segment to achieve an EBITDA margin of approximately 22.9 percent during this period.

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.