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Steel Authority of India Limited (NSEI:SAIL), a ₹329.17B mid-cap, is a metals and mining operating in an industry which can be affected by shifts in the housing market, as many produced raw materials are components of construction projects. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 13.53% in the upcoming year . In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Steel Authority of India is lagging or leading in the industry. View our latest analysis for Steel Authority of India
What’s the catalyst for Steel Authority of India’s sector growth?
Altogether the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be vastly competitive and consolidation seems to be a inevitable. However, the industry is still facing many emerging trends including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the previous year, the industry saw growth in the twenties, beating the Indian market growth of 14.93%. Steel Authority of India leads the pack with its impressive earnings growth of 34.01% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Steel Authority of India poised to deliver a 81.48% growth over the next couple of years compared to the industry’s 13.53%.
Is Steel Authority of India and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 20x, in-line with the Indian stock market PE of 24.96x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.26% on equities compared to the market’s 9.72%. Since Steel Authority of India’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Steel Authority of India’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Steel Authority of India’s industry-beating future is a positive for investors. If Steel Authority of India has been on your watchlist for a while, now may be the time to enter into the stock, if you like its growth prospects and are not highly concentrated in the metals and mining industry. However, before you make a decision on the stock, I suggest you look at Steel Authority of India’s fundamentals in order to build a holistic investment thesis.