If you are looking to invest in United Spirits Limited’s (NSEI:UNITDSPR), 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. The beta measures UNITDSPR’s exposure to the wider market risk, which reflects changes in economic and political factors. Not every stock is exposed 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 considered more sensitive to market-wide shocks compared to a stock that trades below the value of one.
See our latest analysis for United Spirits
What is UNITDSPR’s market risk?
With a five-year beta of 0.41, United Spirits appears to be a less volatile company compared to the rest of the market. This means that the change in UNITDSPR’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, UNITDSPR appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
How does UNITDSPR’s size and industry impact its risk?
A market capitalisation of ₹472.63B puts UNITDSPR in the basket of established companies, which is not a guarantee of low relative risk, though they do tend to experience a lower level of relative risk compared to smaller entities. In addition to size, UNITDSPR also operates in the beverage industry, which has commonly demonstrated muted reactions to market-wide shocks. Hence, investors should expect a lower beta for larger companies operating in a defensive industry in contrast with higher beta for smaller firms in a more cyclical industry. This is consistent with UNITDSPR’s individual beta value we discussed above. Next, we will examine the fundamental factors which can result in a more defensive nature of a stock.
Can UNITDSPR’s asset-composition point to a higher beta?
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I test UNITDSPR’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%, UNITDSPR 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 UNITDSPR 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. However, this is the opposite to what UNITDSPR’s actual beta value suggests, which is lower stock volatility relative to the market.