Small-cap stocks Centum Electronics' share price has generated multibagger returns during the last one, three, and five years. Over the past year, the stock has risen 254 percent from ₹567.95. Meanwhile, it has gained 364 percent in the last three years and 416 percent in the last five.
A ₹1 lakh investment in this stock a year ago would now be worth ₹3.54 lakh. The similar investment 3 and 5 years ago would have yielded ₹4.64 lakh and ₹5.16 lakh, respectively.
Centum was established in 1994 in Bangalore, India. Centum has since expanded into a diversified electronics corporation with operations in North America, Europe, and Asia. The company provides a diverse set of products and services across multiple industry categories. It has consistently invested in improving its design and product development capabilities, as well as establishing extensive domain knowledge in the markets in which it operates.
Centum has also built world-class manufacturing facilities with cutting-edge infrastructure, as well as a worldwide supply network capable of delivering products of high quality and dependability.
The stock has increased by 49 percent year-to-date (YTD) in 2024, reaching a record high of ₹2,011.40 on February 27, 2024, during intra-day trading. The stock has surged about 305 percent from its 52-week low of ₹497 on March 14, 2023.
February is the second consecutive month of gains, with the stock up 20.6 percent after rising 19.35 percent in January. However, it decreased by 8% in December last year.
This large upswing demonstrates the stock's high market interest and bullish sentiment, indicating a record-breaking performance for the company under the current market conditions.
Earnings
Centum Electronics reported a net profit of ₹7.25 crore for the December quarter, compared to a loss of ₹9.67 crore in the same period last year. In the current quarter, revenue increased by 71.5 percent to ₹176.30 crore, up from ₹102.80 crore the previous year.
Selling, general, and administrative expenses increased by 6.94 percent quarter over quarter and 13.03 percent year over year. In addition, its operational income increased by 111.15 percent quarter on quarter and 1724.12 percent year on year.
Brokerage Vistas
Ashika Institutional Equity Research (Ashika) commenced coverage on the stock with a 'buy' call and a target price of ₹2,475, indicating potential upside of more than 28%.
According to the brokerage, the Global Electronics System Design and Manufacturing (ESDM) market is predicted to increase at a 5.4 percent CAGR from CY21-26E to $1,145 billion, up from 3.5 percent growth in CY16-21. The Indian ESDM market is expected to increase at a 32.5 percent rate from FY22-27E, quadrupling to ₹5.99 lakh crore by FY27E from its current level of ₹1.46 lakh crore.
Furthermore, as per the brokerage, China+1, supply chain localisation, favourable government policies such as PLI, SPECS, DLI, and EMC 2.0, Atmanirbhar Bharat, import substitution, cost competitiveness, and export focus have all contributed to the rapid expansion of the Indian ESDM sector.
"Centum Electronics is well-placed to deliver strong revenue and earnings growth in the coming period owing to its presence across key ESDM end-user industries, designing and manufacturing capabilities, and proven execution track record," it said in a statement.
It further stated that Centum's revenue mix consisted of three distinct verticals: EMS, BTS, and ER&D, which accounted for 39 percent, 29 percent, and 32 percent of total revenue, respectively. In light of capabilities, order backlog, and several market tailwinds, Ashika believes all of these verticals are well-positioned to have high revenue growth in the future period.
"We expect Centum's consolidated revenue and EBITDA to grow at a CAGR of 20% and 36%, respectively, over FY23-27E, with margin expansion driven primarily by improved subsidiary operations, increased focus, and orders from high-margin verticals and strategic industries where the company has niche expertise and unique offerings." "We believe the stock is reasonably valued in comparison to other ESDM players and anticipate a potential re-rating once the margin issues at the subsidiary level are addressed," Ashika added.
Key risks, according to the brokerage, are:
▪ Delays in government investment on space and defense initiatives owing to policy changes.
▪ Geopolitical difficulties have led to a slowdown in demand and insufficient raw material supply.
▪ Payment delays and increased working capital.
▪ Client and geographic concentration risk.
