Tube Investments up for third straight day; stock hits new high

The stock up 5% to Rs 359, gaining 9% in past three days, as compared to 1% rise in the S&P BSE Sensex.

Shares of Tube Investments of India, a Murugappa Grou company, were trading higher for the third straight day, rising 5% to Rs 359 per share, hitting a new high on the BSE in an otherwise range-bound market, on expectations of strong earnings growth.

The stock surpassed its previous high of Rs 350 touched on December 13, 2018, in intra-day trade. In the past three trading days, the stock gained 9% as compared to a 1% rise in the S&P BSE Sensex.

The stock of Tube Investments zoomed 70% from its 52-week low of Rs 212 on May 24, 2018. In comparison, the benchmark index was up 4% during the same period.

Murugappa Group auto ancillary company reported a strong 57% year-on-year (Y-o-Y) growth in consolidated net profit at Rs 1.29 billion during the first half (April-September) of the financial year 2018-19 (FY19). The company posted the highest ever revenue of Rs 27.31 billion in a half-year with 18% growth over H1 of last year.

“For H1, higher profitability and lower capital employed enabled improvement in Return on Capital Employed (ROCE) to 20% from 14% in the corresponding period in the previous year. The Company generated a cumulative free cash flow of Rs 600 million in H1, helped by better net working capital and higher profits,” Tube Investments of India said.

The rating agency CRISIL believes that the improvement in Tube Investments credit risk profile will sustain over the medium term supported by steady demand prospects for of its engineering, metal forming and gears businesses, even as its bicycle business is expected to also witness gradual improvement.

The agency believes the company’s overall credit profile will remain healthy supported by well-diversified revenue profile and continued growing demand from customers in the automotive and industrial sectors, resulting in healthy cash generation over the medium term. The company's prudent capital spends and working capital management is also expected to ensure credit metrics remain at healthy levels.

The bicycle division is expected to benefit from the execution of institutional orders and the ramp-up of the new plant in Rajpura (Punjab), which will offer freight savings, as ancillary units are located at a short distance. Besides, engineering and metal form divisions are also expected to benefit from improving demand sentiment from the automotive sector.