Can this little-known stock become the next MRF?

In June 2023, MRF became the first Indian company to cross ₹100,000 a share in the domestic stock market. The company has been the biggest success story of the Indian stock market. Its stock shot up from ₹2,910 in April 2005 to a high of ₹150,000 in February 2024, delivering a compound annual growth rate (CAGR) of 23% over 19 years.

The second-most expensive stock in the Indian market is that of a little-known company which also has the potential to hit six digits. It operates in various segments and supplies products to a diverse set of industries. The stock has surged over the past year, delivering a return of 356%.

The company we’re talking about is The Yamuna Syndicate Ltd (TYSL). It's listed only on the Bombay Stock Exchange and has a market capitalisation of ₹1,920 crore.

Established in 1955, it manufactures and trades a wide variety of products, components and consumables related to the automotive industry, agro chemicals, as well as industrial and consumer electricals.

TYSL offers the following products and services:

1. It has two retail outlets for industrial and consumer electrical goods such as home appliances, energy efficient fans, lighting, switches and wires. TYSL is an authorised dealer of Crompton Greaves Ltd, Larsen and Toubro Ltd, Versa Drives Private Limited, and Havells India Ltd.
2. The company has an automotive fuel retail outlet licensed by HPCL.
3. TTYSL is an authorised Servo stockist (industrial)and distributor of Indian Oil for a wide range of industrial lubricants and greases.
4. It is also a franchisee of Amara Raja Batteries for distribution of the Amaron and Quanta brands of automotive, inverter and UPS batteries.
5. It’s an authorised distributor of Gulf Oil LubricantsIndia’s automotive lubricants and batteries.
6. It is also a dealer for a wide range of agro chemicals through several sales outlets.

The company also holds a 45% stake in ISGEC Heavy Engineering Limited (IHEL), an established player in the engineering, procurement and construction (EPC) space and as a fabricator for equipment and machinery in the capital-goods sector.

Why is Yamuna Syndicate’s stock surging?

TYSL derives roughly 80% of its revenue from the auto ancillary segment, which comprises batteries and oil & lubricants.

The Indian automobile industry posted robust performance, with the domestic market growing by 12.5% during FY24. Companies supplying components and consumables related to the auto industry have thus been on a roll in the past year. The sustained increase in stock prices of auto ancillary companies has led investors to wonder whether there's still steam left in this rally.

Here’s what’s been driving TYSL’s stock price.

#1 Strong profit growth

TYSL reported a 5% decline in revenue for the March quarter, but posted profit-after-tax growth of 2,054% on the back of higher ‘other income’.The board alsorecommended a final dividend of ₹400 a share.

#2 Sector tailwinds

The auto ancillary sector has seen strong demand from automakers, suggesting a strong demand for auto components and consumables. TYSL also trades and manufactures agro chemicals, so the forecast of a stable monsoon this year could boost revenues and profitability.

What’s next for the company?

Management said the overall economic scenario was somewhat uncertain owing to the global geopolitical situation and the possible disruption of supply chains and related businesses. Market conditions were likely to remain difficult, they added, and they expected increased competition in their product segments. Owing to stagnation in several parts of the economy, the demand situation will remain a cause for concern. Consequently, prices are unlikely to increase significantly.

How has the stock performed?

Though TYSL’s stock has always been expensive, it has still delivered returns of more than 370% in the past year, showing a richly priced stock can still outperform if the valuation is justified.

Last Friday the stock touched a new 52-week high at ₹62,990. Its 52-week low was ₹12,751 on 28 July 2023.

Please note that investing in little-known companies carries huge risks. The volume in this counter is tiny at just around 200 shares a day and thus the stock can move sharply in either direction.

Keep in mind the challenges and do your own research before deciding whether to dive in.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com