If you are looking to invest in Bil Energy Systems Limited’s (NSEI:BILENERGY), or currently own the stock, then you need to understand its beta in order to understand how it can affect the risk of your portfolio. BILENERGY is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose to the same level of market risk, and the market as a whole represents a beta of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
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What does BILENERGY’s beta value mean?
Bil Energy Systems’s beta of 0.26 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in BILENERGY’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. Based on this beta value, BILENERGY appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does BILENERGY’s size and industry impact the expected beta?
With a market cap of INR ₹171.25M, BILENERGY falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, BILENERGY also operates in the machinery industry, which has commonly demonstrated strong reactions to market-wide shocks. As a result, we should expect a high beta for the small-cap BILENERGY but a low beta for the machinery industry. This is an interesting conclusion, since both BILENERGY’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can BILENERGY’s asset-composition point to a higher beta?
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I test BILENERGY’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, BILENERGY appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. Thus, we can expect BILENERGY to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. This outcome contradicts BILENERGY’s current beta value which indicates a below-average volatility.