This industrial machinery stock surged 50% in two months on strong results

The stock was up 4% to Rs 1,156 on Friday, extending its previous day's 5% gain, trading at its highest level since April 25, 2012.

Shares of Kennametal India hit an over six-year high of Rs 1,156 apiece, rising 4% on Friday, and extending its 5% gain in the previous session on the BSE in an otherwise weak market.

At 12:11 pm; the S&P BSE Sensex was trading at 35,597 levels. The benchmark index has slipped over 1% lower in the past two days.

The stock was trading at its highest level since April 25, 2012. It was 8% away from its all-time high level of Rs 1,247 touched on April 17, 2012.

In past two months, the stock of Kennametal India, engaged in industrial machinery business, has rallied 50% from Rs 770 level after the company reported more than two-fold jump in net profit in their first quarter ended September 2018 (Q1FY19). In comparison, the benchmark index was up 2% during the period. The company follows July to June as its financial year.

Kennametal India had posted a net profit of Rs 24.4 crore in Q1FY19 against Rs 10 crore in the year-ago quarter. Operational revenue grew 25% to Rs 227 crore from Rs 181 crore in the corresponding quarter of the previous year.

Kennametal India (75% controlled by Kennametal USA) is a leading manufacturer of hard metal products and machine tools which cater to the needs of a wide variety of manufacturing and other industries such as transportation, general engineering, aerospace & defense, energy, power generation equipment, earthworks, mining and construction.

For the fiscal year 2019, the company’s outlook is moderately positive with the private sector investment showing signs of revival.

“There is optimism regarding continuance of the present situation of strong demand for cutting tools especially from the transportation segment. The optimism is mainly because of the sustained buoyancy in demand for vehicles and the expectation of demand arising out of the mandatory transition of automotive engines from BS-IV to BS-VI emission norms in April 2020 because of which the transportation sector is expected to sustain the double-digit growth,” the company said in 2018 annual report.

Despite headwinds like volatile raw material prices and foreign exchange (forex) rates, the management continues to focus on the various growth initiatives and development of new products as key drivers to continue to maintain profitable growth, it added.

“Healthy liquid surpluses (around Rs 95 crore as on June 30, 2018) and absence of debt continue to support financial risk profile. Financial risk profile is expected to remain healthy over the medium term, owing to comfortable capital structure and adequate cash accrual. The company has followed a conservative financial policy and is expected to maintain a strong financial risk profile in the medium term,” CRISIL said in rating rationale on November 22, 2018.