Ramsarup Industries Limited (NSEI:RAMSARUP), a INR₹70.16M small-cap, is an electrical equipment company operating in an industry, which often track the broad economic cycle. During growth, businesses have excess cash, and are comfortable buying ancillary equipement. However, when economic conditions are challenging, businesses may try to repair equipment instead. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 24.87% in the upcoming year . Below, I will examine the sector growth prospects, and also determine whether Ramsarup Industries is a laggard or leader relative to its capital goods peers. See our latest analysis for Ramsarup Industries
What’s the catalyst for Ramsarup Industries’s sector growth?
The electrical equipment industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. Operating structures involve high fixed costs, as well as fluctuating cost of raw materials used in manufacture of products, which impacts the companies’ earnings performance. In the previous year, the industry saw growth in the teens, beating the Indian market growth of 12.80%. Ramsarup 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 Ramsarup Industries may be trading cheaper than its peers.
Is Ramsarup Industries and the sector relatively cheap?
The electrical equipment products industry is trading at a PE ratio of 30x, in-line with 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 8.29% on equities compared to the market’s 9.83%. Since Ramsarup Industries’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Ramsarup 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? Ramsarup Industries has been a electrical equipment industry laggard in the past year. If your initial investment thesis is around the growth prospects of Ramsarup Industries, there are other electrical equipment companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Ramsarup Industries fits into your wider portfolio and the opportunity cost of holding onto the stock.