In This Article:
Savita Oil Technologies Limited (NSE:SOTL), a ₹15.46b small-cap, is a chemicals company operating in an 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 18.1% in the upcoming year , and an enormous growth of 52.6% over the next couple of years. However this rate still came in below the growth rate of the Indian stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Savita Oil Technologies is lagging or leading in the industry.
View our latest analysis for Savita Oil Technologies
What’s the catalyst for Savita Oil Technologies’s sector growth?
The sector seems like it has reached maturity in its life cycle, with vastly competitive companies and inevitable consolidation. In the previous year, the industry saw growth in the twenties, beating the Indian market growth of 21.8%. Savita Oil Technologies leads the pack with its impressive earnings growth of 25.1% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Savita Oil Technologies poised to deliver a 24.0% growth over the next couple of years compared to the industry’s 18.1%. This growth may make Savita Oil Technologies a more expensive stock relative to its peers.
Is Savita Oil Technologies and the sector relatively cheap?
The chemicals sector’s PE is currently hovering around 17.36x, in-line with the Indian stock market PE of 18.73x. 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 13.1% compared to the market’s 9.3%, potentially illustrative of past tailwinds. On the stock-level, Savita Oil Technologies is trading at a lower PE ratio of 12.29x, making it cheaper than the average chemicals stock. In terms of returns, Savita Oil Technologies generated 16.3% in the past year, which is 3.2% over the chemicals sector.
Next Steps:
Savita Oil Technologies’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. In addition to this, its PE is below its chemicals peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of, or enter into, the stock. However, before you make a decision on the stock, I suggest you look at Savita Oil Technologies’s fundamentals in order to build a holistic investment thesis.