GMR Infrastructure Limited (NSE:GMRINFRA), a ₹112.54b small-cap, operates in the engineering and construction (E&C) industry which is expected to benefit from higher gross domestic product, high consumer confidence, and upbeat private sector investments. Along with these positive signals is the potential for significant infrastructure plans and public-private partnerships to fund them. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 27.34% in the upcoming year , and an enormous growth of 90.03% over the next couple of years. the growth rate of the Indian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the E&C sector right now. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether GMR Infrastructure is lagging or leading its competitors in the industry.
What’s the catalyst for GMR Infrastructure’s sector growth?
The E&C industry in Indian faces growing competition from players in China, Korea and India. Firms in rapidly growing economies have spent the past decade focusing on their home markets, gradually building up cash positions and internal expertise. Now, as growth eases in their home markets, they are expanding outward and seeking to compete against established global players. In the past year, the industry delivered growth in the thirties, beating the Indian market growth of 17.69%. GMR Infrastructure lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook doesn’t seem to be much better given that analysts are forecasting continued unprofitability going forward. This lack of growth means GMR Infrastructure may be trading cheaper than its peers.
Is GMR Infrastructure and the sector relatively cheap?
E&C companies are typically trading at a PE of 18.62x, in-line with the Indian stock market PE of 20.83x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.39% on equities compared to the market’s 9.61%. Since GMR Infrastructure’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GMR Infrastructure’s value is to assume the stock should be relatively in-line with its industry.
GMR Infrastructure’s uncertain outlook is concerning for investors, with the prospect of negative earnings persisting into the future. If GMR Infrastructure has been on your watchlist for a while, now may not be the time to enter into the stock. However, before you make a decision on the stock, I suggest you look at GMR Infrastructure’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has GMRINFRA’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of GMR Infrastructure? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.