Surana Industries Limited (NSEI:SURANAIND), a INR₹184.81M small-cap, operates in the basic materials industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 16.97% in the upcoming year . Below, I will examine the sector growth prospects, and also determine whether Surana Industries is a laggard or leader relative to its basic materials sector peers. See our latest analysis for Surana Industries

What’s the catalyst for Surana Industries’s sector growth?

Overall, the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be vastly competitive and consolidation seems to be a natural trend. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. Over the past year, the industry saw growth in the twenties, beating the Indian market growth of 12.84%. Surana Industries lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Surana Industries may be trading cheaper than its peers.

Is Surana Industries and the sector relatively cheap?

metals and mining companies are typically trading at a PE of 23x, below the broader Indian stock market PE of 29x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 8.11% on equities compared to the market’s 9.78%. Since Surana Industries’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Surana Industries’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Surana Industries’s track record in earnings growth shows that it has been able to keep up with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Surana Industries as part of your portfolio. However, if you’re relatively concentrated in materials, you may want to value Surana Industries based on its cash flows to determine if it is overpriced based on its current growth outlook.