Emkay Global

Target: ₹2,950

CMP: ₹2,188.40

Shriram Pistons (SPRL) has entered an agreement for acquiring 100 per cent shareholding in TGPEL Precision Engineering (TGPEL), a manufacturer of high precision injection molds and components, at an EV of ₹220 crore on a debt-free, cash-free basis (expected to close by end December 24; press release).

We believe the acquisition, though small (about 4 per cent of SPRL sales), is important strategically. It will represent another step in diversifying away from engine parts (non-engine revenue contribution may rise to about 15 per cent on pro forma basis vs around 11 per cent pre-TGPEL).

It will also provide another play on a high-growth area, benefiting from the light-weighting trend, with around 4 per cent EPS accretion in FY26E (not built-in). TGPEL’s healthy profitability (about 20-23 per cent EBITDA margin, and over 20 per cent RoCE) and reasonable deal valuation (around 1.9x FY24 EV/Sales; 10.6x PER) provide comfort.

We maintain Buy with unchanged estimates; we raise TP to ₹2,950 at 20x December-26E PER (rolled over; multiple upgraded from 18x earlier, on sustained growth prospects vs the underlying Auto industry, along with rising diversification away from ICE, robust cash flows, and return ratios).

Published on December 12, 2024