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    This multibagger midcap stock could rise 27% in the long-term

    This multibagger midcap stock could rise 27% in the long-term

    This multibagger midcap stock could rise 27% in the long-term
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    By Ajay Vaishnav   IST (Updated)

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    Balkrishna Industries Ltd (BIL) is a genuine multi-bagger, with the mid-cap tyre company's stock returning over 2,100 percent in the last 10 years.

    Balkrishna Industries Ltd (BIL) is a genuine multi-bagger, with the mid-cap tyre company's stock returning over 2,100 percent in the last 10 years. However, the stock has returned a modest 4 percent so far this year, under-performing the Sensex by 14.5 percent, amid cyclical headwinds in the automobile sector and US-China trade war.
    As trade tariff war concerns ease, the tyre company is expected to reap the benefits with brokerage firm ICICI Securities maintaining a 'Buy' rating on Balkrishna Industries with a price target of Rs 1,220 per share in the long-term. The target price has an upside potential of 27 percent of the current market price.
    At 12.54 pm, Balkrishna Industries' shares quoted at Rs 962 apiece on BSE, up 0.81 percent.
    Dispelling investor concerns that revolve around the sustainability of the demand recovery, ICICI Securities' said, "We believe the improving industry growth curve (grew 5 percent on October 2019) reinforces our hypothesis that the demand bottom is behind us and that a recovery cycle is in store for CY20."
    The brokerage believes that BIL's "earnings are poised to grow at 19 percent compound annual growth rate (CAGR) over FY19-FY22E. The stock remains attractive at 7.5 percent FY22E FCF yield."
    ICICI Securities said that restocking by distributors in key markets of the US and European Union could further add around 4-5 percent to BIL's growth. Coupled with an expected rise in domestic aggregate demand should further help Balkrishna Industries, the report added.
    "We believe tyre businesses need to be evaluated on through-cycle
    FCF basis. BIL has transitioned from a difficult phase of negative operating leverage and higher capex/brand investments with relative ease (unlike peers). Its capex phase is nearing completion (FY21/FY22 estimates: Rs5.5 billion/Rs 2 billion respectively), hence we expect it to generate FCF of Rs 8.2 billion/13.7 billion (4.5/7.6 percent FCF yield) during the same period. The stock trades at 14.1x and 8.7x FY22E PE/EBITDA and EV/EBITDA respectively. We find the current FCF yield attractive. We continue to value the stock at 20x September 2021 EPS with an unchanged target price of Rs 1,220. We maintain our BUY rating on the stock," the report said.
    The tyre-maker reported a consolidated net profit of Rs 294.31 crore in Q2FY20 against Rs 210.30 crore in the same period last year. BIL's revenue, however, declined 17 percent year-on-year to Rs 1,084.28 crore in Q2FY20.
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