Prabhat Dairy Limited (NSE:PRABHAT), a ₹13.91b small-cap, is a consumer staples company operating in an industry which has been a consistent performer over time due to its robust consumer demand throughout economic cycles. Consumer staple analysts are forecasting for the entire industry, a positive double-digit growth of 22.3% in the upcoming year , and an enormous growth of 48.1% over the next couple of years. However this rate still came in below the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Prabhat Dairy is lagging or leading in the industry.
View our latest analysis for Prabhat Dairy
What’s the catalyst for Prabhat Dairy’s sector growth?
Disruption from consumers is becoming more prominent than that of industry competitors. Consumers are predominantly leaning towards more health-conscious alternatives such as whole and raw ingredients. Furthermore, companies that are now emerging are latching on these trends with efficient business models. Over the past year, the industry saw growth in the teens, though still underperforming the wider Indian stock market. Prabhat Dairy is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 12.4% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 29.9% growth next year. This growth may make Prabhat Dairy a more expensive stock relative to its peers.
Is Prabhat Dairy and the sector relatively cheap?
The food product sector’s PE is currently hovering around 20.81x, in-line with the Indian stock market PE of 19.33x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.7% on equities compared to the market’s 9.3%. On the stock-level, Prabhat Dairy is trading at a PE ratio of 25.79x, which is relatively in-line with the average food product stock. In terms of returns, Prabhat Dairy generated 7.2% in the past year, which is 2.5% below the food product sector.
Next Steps:
Prabhat Dairy’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If Prabhat Dairy has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at Prabhat Dairy’s fundamentals in order to build a holistic investment thesis.