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Bhagyanagar India Limited (NSE:BHAGYNAGAR), a ₹1.02b small-cap, is an electrical equipment company operating in an industry, which often track the broad economic cycle. During growth, businesses have excess cash, and are comfortable buying ancillary equipement. However, when economic conditions are challenging, businesses may try to repair equipment instead. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 28.6% in the upcoming year , and a massive triple-digit earnings growth over the next couple of years. the growth rate of the Indian stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Bhagyanagar India is lagging or leading in the industry.
See our latest analysis for Bhagyanagar India
What’s the catalyst for Bhagyanagar India’s sector growth?
The industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. Over the past year, the industry saw growth in the teens, though still underperforming the wider Indian stock market. Bhagyanagar India leads the pack with its impressive earnings growth of over 100% last year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 15.2% compared to the wider electrical equipment sector growth hovering in the twenties next year. As a future industry laggard in growth, Bhagyanagar India may be a cheaper stock relative to its peers.
Is Bhagyanagar India and the sector relatively cheap?
Electrical equipment products companies are typically trading at a PE of 16.45x, relatively similar to the rest of the Indian stock market PE of 18.72x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 10.6% on equities compared to the market’s 9.3%. On the stock-level, Bhagyanagar India is trading at a lower PE ratio of 7.68x, making it cheaper than the average electrical equipment stock. In terms of returns, Bhagyanagar India generated 11.0% in the past year, in-line with its industry average.
Next Steps:
Bhagyanagar India is electrical equipment industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, Bhagyanagar India is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Bhagyanagar India’s fundamentals in order to build a holistic investment thesis.