Lockdown wealth creator: This stock has doubled since March 24, time to book profit?

GMM Pfaudler has a market share of more than 50 percent in Glass Lined equipment. It is the market leader in India. Over the years, GMM Pfaudler has diversified its product portfolio to include Mixing Systems, Filtration & Drying Equipment, Engineered Systems, and Tailor Made Process Equipment.

Experts are of the view that the stock is poised to display strong growth in the upcoming quarters, as it might turn out to be a key beneficiary of the shift of manufacturing of Chemical & API business from China to India.

March quarter results got impacted by lockdown but should bounce back or normalise in the second half of the financial year, suggest experts. However, a recent rally in the stock makes analyst cautious in the short term, but the long-term potential still remains intact.

“We believe that GMM Pfaudler is uniquely positioned as it is the market leader in the glass-lined equipment business and caters to the fast-growing segment of chemicals and pharmaceuticals. The company is seeing strong order inflow from the user industries driven by the shift of manufacturing of Chemical & API business from China to India,” Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd told Moneycontrol.

“While the company reported a below-expected set of numbers for Q4 FY20 due to lockdown, we expect operations to normalise by end of Q2 FY21 given strong demand by end-user industry. Despite the COVID-19 crisis, we expect the company to post strong revenue and earnings growth of 21.1% and 43.1% respectively between FY20-FY22E,” he said.

What should investors do?

GMM Pfaudler share price has more than doubled in the last 3 months. Maximum wealth was generated during the lockdown period. The March quarter results were slightly disappointing due to the lockdown but experts feel that growth will revive in the coming quarters.

Someone who is already invested can take some profits off the table because of expensive valuations while for new investors it is a good buy on dips stock. It is a leading supplier of process equipment to the pharmaceutical and chemical industry segments.

“While we feel that the company has strong growth prospects over the next few years, at Rs 4,297, the stock is trading at a relatively expensive valuation of 43.1xFY21 EPS estimates of Rs 99.8 which factors in the strong growth potential,” said Roy of Angel Broking Ltd.

He further added that given expensive valuations relative to historical average we believe that upsides would be capped from current levels and therefore existing investors can look at exiting the stock partially at current levels.

Technical Recommendations:

Technical experts feel that investors could look at booking partial profits, while a re-entry could be seen on dips.

This counter appears to have slipped in a consolidation mode between Rs 4,620–4,176 levels, after appreciating investors’ wealth by more than 100 percent from the panic lows of March placed at Rs 1,817.

“The volumes are very low on this counter which can result in sharp moves in both the directions. Hence, any breakdown below 4,176 can be sharp and can drag down this counter in the zone of 3,700 – 3,500,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Considering the recent rally and the current sideways phase, it looks prudent on the part of traders to book profits at current levels and consider re-entry either on correction towards 3,550 levels or on a fresh breakout above 4,620 for a target of 4,950,” he said.

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