Pratibha Industries Limited (NSEI:PRATIBHA), a INR₹1.65B 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, an extremely elevated growth of 30.87% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Indian stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Pratibha Industries is lagging or leading in the industry. Check out our latest analysis for Pratibha Industries
What’s the catalyst for Pratibha Industries’s sector growth?
The E&C industry in India faces growing competition from players in China, Korea and India. Firms in rapidly growing economies have spent the past decade focusing on their home markets, gradually building up cash positions and internal expertise. Now, as growth eases in their home markets, they are expanding outward and seeking to compete against established global players. In the previous year, the industry saw growth in the teens, beating the Indian market growth of 12.80%. Pratibha 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 Pratibha Industries may be trading cheaper than its peers.
Is Pratibha Industries and the sector relatively cheap?
The E&C industry is trading at a PE ratio of 30x, relatively similar to the rest of the Indian stock market PE of 27x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.72% on equities compared to the market’s 9.83%. Since Pratibha Industries’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Pratibha 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? Pratibha Industries has been an E&C industry laggard in the past year. If your initial investment thesis is around the growth prospects of Pratibha Industries, there are other E&C companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Pratibha Industries fits into your wider portfolio and the opportunity cost of holding onto the stock.