Small & Midcap Mantra | This Tata Group company jumps 168% from May, can gain 17% more in near term

Nelco, #Stocks Views, #Technicals

Shares of Nelco, a part of the $116-billion Tata Group that offers very small aperture terminal connectivity solutions, have generated multibagger returns for investors who have held the stock since May.

The stock has rallied 168 percent from May, outperforming the BSE SmallCap Index, which gained 29 percent. The current rally took place after almost a year of consolidation. The shares closed at Rs 538.75 on the BSE on September 15.

What supported the rally?

On June 9, the company said it received approval from the Department of Telecommunications for the transfer of the internet service provider licence and VSAT licence from Tatanet Services. The internal restructuring of the company’s various businesses and its two wholly owned subsidiaries – Tatanet Services and Nelco Network Products, became effective on June 9, it said.

Nelco currently holds a VSAT licence, ISP licence and inflight and maritime communication licence issued by the DoT.

Tatanet Services also recently obtained an inflight and maritime connectivity licence, a move that can improve business productivity for airlines and shipping companies, said Pushkaraj Kanitkar, VP equities, at GEPL Capital.

Nelco has signed a cooperation agreement with Telesat, a global satellite company in Canada, which is launching low earth orbit (LEO) satellites.

“LEO satellites can act as ‘fibre in the sky,’ providing an alternative solution to terrestrial networks. This will enable the company to serve high-bandwidth segments like cellular backhaul, village connectivity and telecom networks, especially in remote locations and difficult terrain,” Kanitkar said.

LEO satellites are a potential disruptor and once available in India, can spur high growth in satellite communication services, he said. Nelco recently widened its user base for VSAT services.

“Enhanced geographic connectivity required for renewable energy and rural education will also help augment growth,” Kanitkar said.

Started in 1940, Nelco offers enterprise and government customers solutions in VSAT connectivity, satellite communication projects and integrated security and surveillance. Its service benefit oil and gas companies, banks for ATM and inter-branch connectivity, and the renewable energy sector to connect with power grids.

It offers networking solutions and maintenance of private hubs and hybrid networks for customers.

Earnings

Nelco reported a consolidated profit of Rs 4.38 crore in the quarter ended June, more than doubling from Rs 1.84 crore a year earlier, but lower than Rs 4.48 crore in the March 2021 quarter.

Consolidated revenue increased to Rs 55.1 crore in the June quarter from Rs 48.52 crore a year ago. However, revenue fell from Rs 64.83 crore in the previous quarter.

What should investors do?

Experts said the stock can climb to Rs 630 in the near term, but advised against entering at the current level because of the run-up in the stock since May.

“Although it will be an essential part of Digital India, we believe the stock is richly valued and advise investors to book at least 50 percent at the current market price,” said Atish Matlawala, a senior analyst at SSJ Finance & Securities.

Technically, the stock started its move a little late in 2020, said Kanitkar of GEPL Capital.

“This led to a long, one-and-a-half-year consolidation between Rs 175 and Rs 240. This range was broken in June 2021, backed by higher volumes, and hence we saw the first leg taking it to a level of about Rs 400,” he said. “The second leg, augmented with a ‘flag & pole’ breakout, may lead to levels opening up on to Rs 630. We stand positive on the stock.”

Sachin Gupta, AVP-research at Choice Broking, said that on the monthly chart, Nelco broke out in June 2021, after which the stock regained momentum in August 2021 and made a high at Rs 564.95 with 38 percent gains.

“The stock is in bullish territory with a good volume spurt, which confirms the bullish strength for the short term,” Gupta said.

Key indicators such as the relative strength index and stochastic oscillators support the buying trend, he said.

“We expect a continued upside move in the stock till Rs 590-610 in the near term. However, on the downside, support comes in at about Rs 490,” Gupta said.

Viral Chheda, an analyst at SSJ Finance & Securities, advised that one should avoid entering at current levels and wait to enter on dips to Rs 400-450 for an upside target of Rs 600-700 in one to two years.

“Strong support is around Rs 350, below which it can slide further to Rs 250,” Chheda said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.

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