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Precision Wires India Ltd (NSE:PRECWIRE), a ₹5.20b 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 strong double-digit growth of 28.6% in the upcoming year , and a whopping triple-digit earnings growth over the next couple of years. the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Precision Wires India is lagging or leading in the industry.
View our latest analysis for Precision Wires India
What’s the catalyst for Precision Wires India’s sector growth?
The industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. In the previous year, the industry saw growth in the teens, though still underperforming the wider Indian stock market. Precision Wires India leads the pack with its impressive earnings growth of 47.6% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 15.1% compared to the wider electrical equipment sector growth hovering in the twenties next year. As a future industry laggard in growth, Precision Wires India may be a cheaper stock relative to its peers.
Is Precision Wires India and the sector relatively cheap?
The electrical equipment products sector’s PE is currently hovering around 17.12x, relatively similar to the rest of the Indian stock market PE of 19.33x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 10.6% on equities compared to the market’s 9.3%. On the stock-level, Precision Wires India is trading at a PE ratio of 13.51x, which is relatively in-line with the average electrical equipment stock. In terms of returns, Precision Wires India generated 16.3% in the past year, which is 5.7% over the electrical equipment sector.
Next Steps:
If Precision Wires India has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is electrical equipment industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the capital goods sector. However, before you make a decision on the stock, I suggest you look at Precision Wires India’s fundamentals in order to build a holistic investment thesis.