Top Conviction Ideas : Buy Pitti Engineering Ltd For Target Rs. 1,350 by Axis Securities Ltd
* Volumes to be Driven by Improving Capacity Utilisation: PEL reported a 17% YoY revenue increase despite relatively modest volume growth. For the quarter, capacity utilisation stood at 82% for machined hours, 70% for sheet metals, and 69% for casting, indicating substantial headroom for volume expansion. The company expects steady improvement in utilisation levels, supported by strong demand from key end markets, enabling it to achieve its targeted 10% volume growth for FY26 and revenue of Rs 2,000 Cr.
* Improving Margins: PEL delivered 30% YoY EBITDA growth during the quarter, with a 168 bps improvement in margins. Gains were driven by better operating leverage from increasing volumes and ongoing cost optimisation measures. Management expects further margin expansion, aided by synergies from business integration and higher utilisation levels, with a guided improvement of 75–100 bps by FY27.
* New Capex to Fuel Volume Growth Beyond FY27: The board has approved a capex of Rs 150 Cr to expand manufacturing capacities at PEL and its wholly owned subsidiaries, Pitti Industries Pvt. Ltd. and Dakshin Foundry Pvt. Ltd. The expansion, funded through internal accruals and debt, will be executed in phases over 18 months. With existing capacities nearing peak utilisation, this investment is aimed at meeting rising demand and supporting long-term growth opportunities.
* Valuation & Recommendation: We value the stock at 25x its FY27E EPS with target price to Rs 1,350/share. We believe that the current valuations appear attractive and have a BUY rating on the stock.
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