In This Article:
Torrent Power Limited (NSE:TORNTPOWER), a ₹112.5b small-cap, is a utility company operating in an industry which has experienced a host of challenges, including the ongoing maintenance of assets, and increased desire by consumers for energy management and conservation. Utilities analysts are forecasting for the entire industry, a positive double-digit growth of 20% in the upcoming year , and an optimistic near-term growth of 17% over the next couple of years. However, this rate came in below the growth rate of the Indian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Torrent Power is a laggard or leader relative to its utilities sector peers.
Check out our latest analysis for Torrent Power
What’s the catalyst for Torrent Power’s sector growth?
Going forward, utility companies face the threat of new entrants and disruptive technologies, growth in renewable generation, and aging assets, just to name a few. In the previous year, the industry saw growth in the twenties, beating the Indian market growth of 23%. Torrent Power leads the pack with its impressive earnings growth of 65% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Torrent Power poised to deliver a 24% growth over the next couple of years compared to the industry’s 20%. This growth may make Torrent Power a more expensive stock relative to its peers.
Is Torrent Power and the sector relatively cheap?
Electric utility companies are typically trading at a PE of 12.14x, below the broader Indian stock market PE of 17.72x. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 12% compared to the market’s 9.5%, making it a potentially attractive sector. On the stock-level, Torrent Power is trading at a PE ratio of 11.65x, which is relatively in-line with the average utilities stock. In terms of returns, Torrent Power generated 13% in the past year, in-line with its industry average.
Next Steps:
Torrent Power’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 Torrent Power 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 Torrent Power’s fundamentals in order to build a holistic investment thesis.