Nuvama initiates 'Buy' rating on Ajax Engineering, sets target price at Rs 800
Nuvama Institutional Equities has initiated coverage on Ajax Engineering Ltd with a 'Buy' rating and a target price of Rs 800. The target is based on 30 times anticipated FY27 core earnings and includes cash at Rs 84 per share. Ajax's historical growth and future projections underpin this evaluation.
- Apr 17, 2025,
- Updated Apr 17, 2025 9:15 AM IST
Nuvama Institutional Equities has commenced coverage on Ajax Engineering Ltd with a 'Buy' rating and set a target price of Rs 800. This assessment is derived from a multiple of 30 times the anticipated FY27 core earnings per share and incorporates cash valued at Rs 84 per share. Ajax's performance, reflected in a 20 per cent top-line compound annual growth rate (CAGR) over FY15–25, is a key foundation for this rating.
Looking ahead, Ajax's growth prospects for FY26 are expected to moderate slightly, with a projected 9 per cent increase due to changes in emission norms. However, Nuvama remains optimistic about the medium-term trajectory, forecasting a revenue CAGR of 13 per cent and an earnings per share (EPS) CAGR of 14 per cent over FY25–29, supported by an impressive return on invested capital (RoIC) exceeding 80 per cent. Ajax's asset-light model is notable, with an average gross asset turnover of 8x from FY23–25, contributing to an RoIC of 74 per cent during this period, which is anticipated to improve to 86 per cent over FY25–29.
Nuvama stated that "average FCF for Ajax may be ~INR3bn over FY25–29E, which would lift net cash from INR8bn in FY25E to INR17bn in FY29E." This enhancement is expected to bolster Ajax's financial position significantly. Nuvama contends that the high target multiple is warranted due to Ajax's consistent outperformance and high RoIC compared with its peers.
Key risks include the potential for slower-than-expected growth and margin pressures in FY26 as a result of emission norm changes and delayed execution of infrastructure and real estate projects. Additionally, increased competition and the failure of new products could impact market share. The mechanised construction equipment industry has seen volumes grow at a CAGR of 17 per cent from FY19–24, surpassing the concrete manufacturing sector. This mechanisation trend is expected to continue, with industry volumes projected to expand at a 12 per cent CAGR from FY25–29.
Ajax Engineering's strategic positioning and asset-light model place it in a favourable position amidst industry trends. The company's ability to adapt to regulatory changes and maintain financial health will be crucial. Furthermore, Ajax aims to capitalise on the expanding mechanisation trend, which could drive future growth.
Nuvama's comprehensive analysis reflects confidence in Ajax's capacity for sustained success. The firm's focus on RoIC and asset turnover highlights a commitment to maximising shareholder value. As the construction equipment industry evolves, Ajax's proactive strategies and market adaptability will be pivotal in achieving its objectives.
Investors will be keenly observing Ajax's performance, especially in response to changing market dynamics. Nuvama's analysis provides valuable insights into the company's potential trajectory, underscoring the importance of strategic execution in realising projected outcomes.
Nuvama Institutional Equities has commenced coverage on Ajax Engineering Ltd with a 'Buy' rating and set a target price of Rs 800. This assessment is derived from a multiple of 30 times the anticipated FY27 core earnings per share and incorporates cash valued at Rs 84 per share. Ajax's performance, reflected in a 20 per cent top-line compound annual growth rate (CAGR) over FY15–25, is a key foundation for this rating.
Looking ahead, Ajax's growth prospects for FY26 are expected to moderate slightly, with a projected 9 per cent increase due to changes in emission norms. However, Nuvama remains optimistic about the medium-term trajectory, forecasting a revenue CAGR of 13 per cent and an earnings per share (EPS) CAGR of 14 per cent over FY25–29, supported by an impressive return on invested capital (RoIC) exceeding 80 per cent. Ajax's asset-light model is notable, with an average gross asset turnover of 8x from FY23–25, contributing to an RoIC of 74 per cent during this period, which is anticipated to improve to 86 per cent over FY25–29.
Nuvama stated that "average FCF for Ajax may be ~INR3bn over FY25–29E, which would lift net cash from INR8bn in FY25E to INR17bn in FY29E." This enhancement is expected to bolster Ajax's financial position significantly. Nuvama contends that the high target multiple is warranted due to Ajax's consistent outperformance and high RoIC compared with its peers.
Key risks include the potential for slower-than-expected growth and margin pressures in FY26 as a result of emission norm changes and delayed execution of infrastructure and real estate projects. Additionally, increased competition and the failure of new products could impact market share. The mechanised construction equipment industry has seen volumes grow at a CAGR of 17 per cent from FY19–24, surpassing the concrete manufacturing sector. This mechanisation trend is expected to continue, with industry volumes projected to expand at a 12 per cent CAGR from FY25–29.
Ajax Engineering's strategic positioning and asset-light model place it in a favourable position amidst industry trends. The company's ability to adapt to regulatory changes and maintain financial health will be crucial. Furthermore, Ajax aims to capitalise on the expanding mechanisation trend, which could drive future growth.
Nuvama's comprehensive analysis reflects confidence in Ajax's capacity for sustained success. The firm's focus on RoIC and asset turnover highlights a commitment to maximising shareholder value. As the construction equipment industry evolves, Ajax's proactive strategies and market adaptability will be pivotal in achieving its objectives.
Investors will be keenly observing Ajax's performance, especially in response to changing market dynamics. Nuvama's analysis provides valuable insights into the company's potential trajectory, underscoring the importance of strategic execution in realising projected outcomes.