Khaitan Electricals Limited (NSEI:KHAITANELE), a INR₹129.54M small-cap, is a consumer discretionary company operating in an industry, whose performance is predominantly driven by consumer confidence. Macro elements tend to determine how fast, and how often, consumers buy big-ticket durable items. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 26.17% in the upcoming year , and a whopping growth of 75.08% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Khaitan Electricals is a laggard or leader relative to its consumer discretionary sector peers. View our latest analysis for Khaitan Electricals
What’s the catalyst for Khaitan Electricals’s sector growth?
E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. In the previous year, the industry saw growth in the teens, beating the Indian market growth of 12.84%. Khaitan Electricals 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 Khaitan Electricals may be trading cheaper than its peers.
Is Khaitan Electricals and the sector relatively cheap?
Household durables companies are typically trading at a PE of 48x, above the broader Indian stock market PE of 29x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry did return a higher 17.22% compared to the market’s 9.78%, which may be indicative of past tailwinds. Since Khaitan Electricals’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Khaitan Electricals’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Khaitan Electricals has been a household durables industry laggard in the past year. If your initial investment thesis is around the growth prospects of Khaitan Electricals, there are other household durables companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Khaitan Electricals fits into your wider portfolio and the opportunity cost of holding onto the stock.