Capacity Expansions In Chile And Dahej Will Support Future Demand In Gold And Copper Markets

Key Takeaways

• Strong demand from gold and copper mines and operational excellence are driving robust revenue growth and improving net margins.
  
• Strategic capacity expansions are set to accommodate rising demand, ensuring future revenue stability and growth.
  
• Delays and supply chain issues threaten revenue growth, while reliance on customized products for specific markets introduces risk to future earnings.

Catalysts

Designs, manufactures, and installs process equipment and accessories for the mineral processing, mining, and material handling industries.

• The company is experiencing robust demand from gold and copper mines due to sustained elevated gold prices and increasing demand for copper, which are expected to continue driving revenue growth.
  
• Operational excellence and tight cost control are helping Tega Industries navigate supply chain disruptions, potentially leading to improved net margins in the future.
  
• The order book is strong at ₹1,258 crores, with executable orders of ₹758 crores within one year, indicating likely future revenue stability and growth.
  
• With the ore grades declining, Tega's solutions and consumables are expected to see increased consumption, positively impacting revenue and margins.
  
• Plans for capacity expansion in the Chile plant, despite delays, and additional capabilities at Dahej, are positioned to accommodate increased future demand, supporting revenue growth over the next couple of years.

Tega Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tega Industries's revenue will grow by 20.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.7% today to 16.6% in 3 years time.
• Analysts expect earnings to reach ₹4.7 billion (and earnings per share of ₹69.54) by about February 2028, up from ₹1.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.1x on those 2028 earnings, down from 54.4x today. This future PE is greater than the current PE for the IN Machinery industry at 35.9x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.67%, as per the Simply Wall St company report.

Tega Industries Future Earnings Per Share Growth

Risks

• The delay in the Chile project by 6 to 8 months due to regulatory approval issues could impact revenue growth projections and lead to potential cost overruns, affecting net margins.
  
• The equipment business experienced a decline of 8% due to non-receipt of pro forma invoices and manufacturing clearance delays, which may further impact annual revenue growth if not resolved.
  
• The ongoing supply chain disruptions, including increased freight costs, lack of container availability, and port congestion, continue to pose risks to efficient operations, potentially affecting net earnings.
  
• The U.S. market exposure and potential new tariff impositions create uncertainty in revenue stabilization from this region, particularly if tariffs negatively affect imports to or from Tega's manufacturing countries.
  
• The company's reliance on customized products for declining ore grades in gold and copper presents a concentration risk. Any adverse changes in these markets could lead to reduced demand and negatively impact future earnings.

Valuation

• The analysts have a consensus price target of ₹1938.0 for Tega Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2120.0, and the most bearish reporting a price target of just ₹1714.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹28.2 billion, earnings will come to ₹4.7 billion, and it would be trading on a PE ratio of 40.1x, assuming you use a discount rate of 13.7%.
  
• Given the current share price of ₹1535.35, the analyst price target of ₹1938.0 is 20.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.