For Piramal Phytocare Limited’s (NSEI:PIRPHYTO) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not every stock is exposed to the same level of market risk, and the broad market index represents a beta value 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.
Check out our latest analysis for Piramal Phytocare
What is PIRPHYTO’s market risk?
Piramal Phytocare’s beta of 0.92 indicates that the stock value will be less variable compared to the whole stock market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. PIRPHYTO’s beta indicates it is a stock that investors may find valuable if they want to reduce the overall market risk exposure of their stock portfolio.
How does PIRPHYTO’s size and industry impact its risk?
With a market cap of INR ₹1.17B, PIRPHYTO falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. However, PIRPHYTO operates in the personal products industry, which has commonly demonstrated muted reactions to market-wide shocks. Therefore, investors can expect a high beta associated with the size of PIRPHYTO, but a lower beta given the nature of the industry it operates in. This is an interesting conclusion, since its size suggests PIRPHYTO should be more volatile than it actually is. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is PIRPHYTO’s cost structure indicative of a high 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 PIRPHYTO’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. Since PIRPHYTO’s fixed assets are only 11.21% of its total assets, it doesn’t depend heavily on a high level of these rigid and costly assets to operate its business. Thus, we can expect PIRPHYTO to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, PIRPHYTO’s beta value conveys the same message.