Tube Investment of India (TII) is set for a good rally ahead on stock exchanges with a long-term growth strategy and foraying into electric three-wheelers market along with Optic lens to work in favor of the stock. Due to strong fundamentals and strategic change adopted by the company, Geojit Financial Services has recommended 'Accumulate' on the stock with a target price of Rs1,746 apiece going forward.

On Tuesday, Tube Investments stock made the massive correction and neared to Rs1,455 apiece level before closing at Rs1476.30 apiece down by Rs90.25 or 5.76% on BSE. The stock stood at Rs1566.55 apiece on Monday.

In its report, Geojit stated that Tube Investment's long-term strategy to insulate itself from the cyclical nature of the auto sector through organic, inorganic growth and entering into a new venture such as an EV OEM is largely in place for the company. The growth share in the export market for legacy products like engineering and TI cycles are growing in double-digit due to entering newer geographies and having export incentives.

Acquisition of CG Power has become positive for the company. It is well poised to take the benefit of CG power’s market leadership globally. Tube Investments has set a modest target of Rs5000 crore and Rs500 crore in revenue and PBT in four to five years for CG.

Further, Geojit's report states that Tube Investment's entry into 3W electric manufacturing with an outlay of Rs200cr will also mark the group’s foray into complete automobile manufacturing. The technology and the prototype of the EV three-wheeler have already been developed and will be a combination of in-house as well as design support from a Korean company.

"Due to semiconductor shortage, the company has extended the deadline to launch the vehicle in Q2FY23 from Q4FY22. The company has also made a small foray into the optical lens or vision products for automotive and other industries. On an initial phase, the existing plant has already been set up for a capacity of half a million lenses a month and running for its certification process with an anchor customer," Geojit's note added.

In Q3FY22, Tube Investment's revenue rose by y 4.3%QoQ driven by double-digit growth from the export market and 8%QoQ from CG power and Industrials. Its standalone business including Shanti gears., which largely consists of the legacy business grew by 16% YoY(0.8% QoQ). With an export share of 20% currently in the engineering business, Tube Investments reiterated that it is likely to be 30% in 2-3 years, and for industrial business 40% coming from export. Overall, the company targets a 30% export share in business during the medium term.

In its valuations, Geojit's note said, "We expect TIIs diversified approach to de-risk from auto sector and concentrate more on other industrial segments like railways & powers through the inorganic form to support long term revenue visibility. Additionally, Government’s PLI scheme and China plus strategy by major international OEMs to bring incremental growth for medium term. We rollover and value TII on a consolidated basis, with a P/E of 26x FY24E EPS and recommend Accumulate rating with a target price of Rs.1,746 at CMP."

Tube Investments is among the applicants that have received the government's approval for the PLI scheme under Component Champion Incentive Scheme. PLI for the Automobile and Auto Component Industry witnessed a stellar demand from the auto companies with a proposed investment of a whopping Rs74,850 crore against the target estimate of Rs42,500 crore. 75 applicants were approved under the “Component Champion Incentive Scheme".

The Component Champion Incentive scheme is a ‘sales value linked’ scheme, applicable on Advanced Automotive Technology components of vehicles, Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) kits, Vehicle aggregates of 2-Wheelers, 3-Wheelers, passenger vehicles, commercial vehicles, and tractors, etc.