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The Hi-Tech Gears Limited (NSE:HITECHGEAR), a ₹7.3b small-cap, operates in the auto industry which is a major player in the economy due to its high commodity consumption. New growth opportunities in smart cars and software is not the traditional focus for most auto companies. Automobile analysts are forecasting for the entire industry, a positive double-digit growth of 23% in the upcoming year , and an enormous growth of 50% over the next couple of years. However this rate still came in below the growth rate of the Indian Below, I will examine the sector growth prospects, as well as evaluate whether Hi-Tech Gears is lagging or leading its competitors in the industry.
Check out our latest analysis for Hi-Tech Gears
What’s the catalyst for Hi-Tech Gears’s sector growth?
The increasing presence of tech firms in the auto industry cannot be discounted by OEMs. Over the past year, the industry saw growth in the twenties, beating the Indian market growth of 23%. Hi-Tech Gears leads the pack with its impressive earnings growth of 70% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 2.9% compared to the wider automobile sector growth hovering in the twenties next year. As a future industry laggard in growth, Hi-Tech Gears may be a cheaper stock relative to its peers.
Is Hi-Tech Gears and the sector relatively cheap?
Automobile companies are typically trading at a PE of 18.7x, in-line with the Indian stock market PE of 17.55x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 14% compared to the market’s 9.5%, potentially illustrative of a turnaround. On the stock-level, Hi-Tech Gears is trading at a PE ratio of 21.1x, which is relatively in-line with the average automobile stock. In terms of returns, Hi-Tech Gears generated 14% in the past year, in-line with its industry average.
Next Steps:
If Hi-Tech Gears has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an automobile industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the automobile sector. However, before you make a decision on the stock, I suggest you look at Hi-Tech Gears’s fundamentals in order to build a holistic investment thesis.