CG Power's robust M&A record, quick turnaround makes UBS bullish; assigns 'buy' rating

UBS sees CG Power as the candidate for the best earnings CAGR within the sector.

CG Power is a major player in the domestic industrial motor, rail product and transmission equipment space with a robust M&A record and quick turnaround, making brokerage firm UBS bullish on the stock. The firm set a price target of Rs 580 for the stock as it initiated coverage with a 'buy' call.

Shares of CG Power also reacted positively to the UBS' bullish views and at 09.20 am, were trading 3 percent higher at Rs 477.80 on the NSE.

"CG Power's competitive edge, domestic and global prospects, and driven leadership team should support long-term compounding of revenue growth and return," UBS stated in its report. The firm also valued CG Power at par with its multinational peers owing to its robust exposure to organic and inorganic growth opportunities in the electrification and industrial markets.

CG Power enjoys a dominant market position across segments while the company is also sharpening its focus on expanding the addressable market to new products and markets, supported by its strong balance sheet, which according to UBS, should drive high double-digit top-line growth with industry-leading returns.

The firm also forecasted a 21 percent earnings CAGR (Compounded Annual Growth Rate) for CG Power in FY23-26 (300 basis points from exports), excluding inorganic growth in rail and industrials.

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UBS also said that CG Power's focus on organic and inorganic expansion could be a key differentiator versus peers. "Management's three-pillar strategy prioritises exports, capacity expansion, and technology. If executed well, CG Power could bridge the size and capability gaps versus multinational peers in the long run," the firm stated.

Moreover, the company's recent foray into the semiconductor value chain and testing is also likely to add to stakeholder returns.

Meanwhile, domestic trends also remain positive with planned upgrades in domestic urban infrastructure segments such as mobility,  renewable energy-led transmission, and efficiency capex in industrials. On that account, UBS pegged CG Power's current domestic TAM (Total addressable market) to reach $8 billion in FY28 from the current $4 billion, implying a healthy 15 percent CAGR.

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