Accumulate Divgi Torqtransfer Systems; target of Rs 831: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Divgi Torqtransfer Systems with a target price of Rs 831 in its research report dated May 27, 2024.

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May 28, 2024 / 14:15 IST

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Prabhudas Lilladher's research report on Divgi Torqtransfer Systems

We cut our FY25E/26E EPS by 23.3%/26.8%, to factor in headwinds in the legacy business. Divgi Torqtransfer’s (DIVGIITT) Q4FY24 revenue/EBITDA was lower than our estimates by 20.3%/28.6% respectively, led by weakness across segments. On the flipside, its EV side of the business grew by significantly driven by ramp-up in production at Shriwal plant. The management noted that the business headwinds are expected to continue in H1FY25 in its key business due to which it lowered its revenue growth guidance to 8-10% in FY25. It is working with its key clients towards the product restructuring which shall aid in volume expansion from H2FY25. We expect DIVGIITTS to benefit from 1) ramp-up in its EV business to offset the headwinds in the legacy business 2) Focus on expanding its geographical presence which shall drive revenue and margin expansion 3) Increase the sale of components and other products. Factoring this, we estimate its revenue/EBITDA/PAT to grow at a CAGR of 15.1%/26.4%/35.2% over FY24- FY26E.

Outlook

Given the near-term headwinds in the core business, we downgrade our rating from ‘BUY’ to ‘ACCUMULATE’ with TP of Rs 831 valuing it at a PE of 35x on its FY26E EPS.

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