Bil Energy Systems Limited (NSEI:BILENERGY), a INR₹226.22M small-cap, operates in the machinery manufacturing industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 15.19% in the upcoming year . Below, I will examine the sector growth prospects, and also determine whether Bil Energy Systems is a laggard or leader relative to its capital goods peers. Check out our latest analysis for Bil Energy Systems
What’s the catalyst for Bil Energy Systems’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains and operations more efficiently, and build strategic partnerships that will help grow market share. In the previous year, the industry saw growth in the teens, beating the Indian market growth of 12.93%. Bil Energy Systems 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 Bil Energy Systems may be trading cheaper than its peers.
Is Bil Energy Systems and the sector relatively cheap?
Machinery companies are typically trading at a PE of 33x, relatively similar to the rest of the Indian stock market PE of 29x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.46% on equities compared to the market’s 9.82%. Since Bil Energy Systems’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Bil Energy Systems’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Bil Energy Systems has been a machinery industry laggard in the past year. If your initial investment thesis is around the growth prospects of Bil Energy Systems, there are other machinery companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Bil Energy Systems fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Bil Energy Systems has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its machinery peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Bil Energy Systems’s future cash flows in order to assess whether the stock is trading at a reasonable price.