Kalpataru Power Transmission Limited (NSE:KALPATPOWR), a ₹46.5b small-cap, is a engineering and construction (E&C) company operating in an industry, which is expected to benefit from higher gross domestic product, high consumer confidence, and upbeat private sector investments. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 25% in the upcoming year , and an enormous growth of 72% over the next couple of years. the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Kalpataru Power Transmission is lagging or leading in the industry.
View our latest analysis for Kalpataru Power Transmission
What’s the catalyst for Kalpataru Power Transmission’s sector growth?
The E&C industry in Indian faces growing competition from players in emerging markets, who are beginning to expand outward and seek to take market share from established global players. In the past year, the industry delivered growth in the thirties, beating the Indian market growth of 22%. Kalpataru Power Transmission leads the pack with its impressive earnings growth of 51% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Kalpataru Power Transmission poised to deliver a 34% growth over the next couple of years compared to the industry’s 25%. This growth may make Kalpataru Power Transmission a more expensive stock relative to its peers.
Is Kalpataru Power Transmission and the sector relatively cheap?
The E&C industry is trading at a PE ratio of 16.24x, relatively similar to the rest of the Indian stock market PE of 17.18x. 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 8.4% on equities compared to the market’s 9.3%. On the stock-level, Kalpataru Power Transmission is trading at a PE ratio of 16.51x, which is relatively in-line with the average E&C stock. In terms of returns, Kalpataru Power Transmission generated 9.9% in the past year, which is 1.5% over the E&C sector.
Next Steps:
Kalpataru Power Transmission’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 Kalpataru Power Transmission 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 Kalpataru Power Transmission’s fundamentals in order to build a holistic investment thesis.