Domestic brokerage firm Equirus Securities has commenced coverage on Sharda Motor Industries Ltd, assigning a 'Long' rating to the auto-ancillary company. The firm has set a target price of Rs 1,340 for the stock, indicating a substantial upside potential of around 42% from its assessed price of Rs 944.
Sharda Motor Industries is recognized as a leading manufacturer of automotive emission-control systems in India, holding an estimated 30% value share in domestic passenger vehicle (PV) and light commercial vehicle (LCV) exhaust systems. This established market presence provides a strong foundation for earnings and cash generation, enabling the company to diversify into powertrain-agnostic adjacencies.
Growth Drivers and Diversification Strategies
Equirus highlights several growth drivers supporting its positive outlook. The company is actively pursuing diversification through secured light-weighting and export orders. Additionally, the Donghee TLA partnership is expected to add higher-value suspension components to Sharda Motor's product portfolio. The brokerage projects light-weighting and export revenues to reach Rs 13 billion and Rs 3.5 billion, respectively, by FY31E, anticipating further nominations in these segments.
These strategic initiatives are expected to fuel significant earnings growth in the coming years. Equirus forecasts a robust 12% revenue CAGR, 15% EBITDA CAGR, and 15% PAT CAGR for Sharda Motor Industries over the FY26-FY29E period.
Valuation and Market Perspective
The brokerage's valuation methodology involves valuing the core business at 15x December 2028E EPS, which is notably lower than the sector average P/E of 25x. By incorporating Rs 303 per share of net cash and investments, Equirus arrives at its December 2027 target price of Rs 1,340.
Equirus suggests that current market valuations may be overstating the terminal risk associated with Sharda Motor's emission control franchise. This implies an assumption of approximately 57% domestic PV Battery Electric Vehicle (BEV) penetration by FY40E, which is significantly higher than Equirus's base case projection of around 33%. The brokerage argues that overall PV growth and the fiscal implications of preferential EV taxation support a more gradual transition, thereby making the current valuations appear exaggerated while overlooking the company's growth prospects from light-weighting, exports, recent acquisitions, and potential future inorganic opportunities.
Disclaimer: This article provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.