A Murugappa group stock rallied 35% in 30 days and the Street still remains upbeat

Tube Investments (TIINDIA) — a Murugappa group company — has rewarded investors with a return of more than 35 percent in 30 days, and the Street remains upbeat on its long-term growth prospects.

Yet, analysts are eyeing more upside in the stock betting on its margin, superior product mix and cost pass-through abilities that they believe will help it tackle raw material inflation — which continues to haunt manufacturers across industries.

Chennai-based precision engineering company Tube has a diversified portfolio, catering to a slew of industries such as automotive, railway, construction, mining and agriculture — a primary reason that makes it the choicest pick for many analysts.

Tube Investments' long-term growth strategy to insulate itself from the cyclical nature of the auto sector is intact, according to Geojit Financial Services.

Saji John, Research Analyst at Geojit Financial Services, told CNBCTV18.com that the stock is quoting at 29 times its earnings per share estimate for the year ending March 2024 — a premium compared with its three-year average of 26 times.

He expects the Murugappa group flagship's diversified approach to de-risk from the auto space and to concentrate more on other segments like railways and powers to support its long-term revenue visibility.

The respite in commodity prices and a gradual recovery in the two-wheeler segment will support Tube's valuation, John added.

The brokerage is also positive on the government's Production-Linked Incentive scheme, and expects the China Plus One strategy — which deals with avoiding investing only in China and instead, diversifying into other markets — by major original equipment makers to lead to incremental growth for Tube over the medium term.

TIINDIA is reinvesting cash flows for sustained growth with a sound framework to drive a net profit CAGR or 25 percent over the next three years, and aid the company's growth beyond auto parts, according to Motilal Oswal analysts in a report dated June 23.

Tube's cycle business — which contributes about 15 percent to the company's revenue — is estimated to grow at a CAGR of 10 percent driven by strong growth in exports, the brokerage said.

Other stocks from the Murugappa group include Carborundum Universal, Cholamandalam Investment, EID Parry and Shanthi Gears.