Sharda Motor Industries Limited (NSEI:SHARDA), a ₹11.74B small-cap, is an automobile company operating in an industry which is a major consumer of key commodities such as copper and steel, making the car manufacturers and suppliers significant players in the global economy. Upcoming challenges facing the sector is navigating the path from current automobile models to driverless cars, requiring high capital outlays in emerging technology. The limitation of automobile incumbents is an opportunity for tech giants such as Apple and Google to develop their own software components behind networking, autonomous and communication capabilities of automobiles. Automobile analysts are forecasting for the entire industry, a positive double-digit growth of 14.22% in the upcoming year . Is the automobile industry an attractive sector-play right now? In this article, I’ll take you through the automobile sector growth expectations, as well as evaluate whether Sharda Motor Industries is lagging or leading its competitors in the industry. View our latest analysis for Sharda Motor Industries
What’s the catalyst for Sharda Motor Industries’s sector growth?
The growing presence in the auto industry of technology firms incontrovertible. In the next decade, software integration will likely have a significant impact on the auto industry, given the alignment of their expertise – they are proficient at seamlessly connecting components to create networks valued by consumers for the information, efficiencies, and experiences they deliver. Over the past year, the industry saw growth in the teens, though still underperforming the wider Indian stock market. Sharda Motor Industries leads the pack with its impressive earnings growth of 69.05% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Sharda Motor Industries poised to deliver a 28.28% growth over the next couple of years compared to the industry’s 14.22%. This growth may make Sharda Motor Industries a more expensive stock relative to its peers.
Is Sharda Motor Industries and the sector relatively cheap?
Automobile companies are typically trading at a PE of 28.41x, in-line with the Indian stock market PE of 24.18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 12.81% compared to the market’s 9.68%, potentially illustrative of a turnaround. On the stock-level, Sharda Motor Industries is trading at a lower PE ratio of 19.68x, making it cheaper than the average automobile stock. In terms of returns, Sharda Motor Industries generated 19.76% in the past year, which is 6.95% over the automobile sector.
Next Steps:Sharda Motor Industries’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. In addition to this, its PE is below its automobile peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of, or enter into, the stock. However, before you make a decision on the stock, I suggest you look at Sharda Motor Industries’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 SHARDA’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 Sharda Motor Industries? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!