Capital Goods Industry Trends And Its Impact On Havells India Limited (NSE:HAVELLS)

Havells India Limited (NSEI:HAVELLS), a ₹323.40B mid-cap, operates in the electrical equipment industry which often track the broad economic cycle. During periods of prosperity, when businesses have excess cash, they are comfortable expanding their capital budgets and spending on electrical equipment. However, when economic conditions are very challenging, businesses may pull back dramatically on equipment orders and try to repair or replace equipment during regular, seasonal or cyclical slack periods. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 22.17% in the upcoming year . Is now the right time to pick up some shares in electrical companies? In this article, I’ll take you through the sector growth expectations, and also determine whether Havells India is a laggard or leader relative to its capital goods sector peers. View our latest analysis for Havells India

What’s the catalyst for Havells India's sector growth?

The electrical equipment industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. Operating structures involve high fixed costs, as well as fluctuating cost of raw materials used in manufacture of products, which impacts the companies’ earnings performance. In the past year, the industry delivered growth in the thirties, beating the Indian market growth of 14.73%. Havells India lags the pack with its negative growth rate of -62.90% over the past year, which indicates the company will be growing at a slower pace than its electrical equipment peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 41.97% in the upcoming year. This future growth may make Havells India a more expensive stock relative to its peers.

Is Havells India and the sector relatively cheap?

The electrical equipment products sector's PE is currently hovering around 25.95x, in-line with the Indian stock market PE of 24.13x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.93% on equities compared to the market’s 9.68%. On the stock-level, Havells India is trading at a higher PE ratio of 66.95x, making it more expensive than the average electrical equipment stock. In terms of returns, Havells India generated 14.67% in the past year, which is 5.75% over the electrical equipment sector.

Next Steps:

Havells India’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Havells India has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other electrical equipment companies. However, before you make a decision on the stock, I suggest you look at Havells India's fundamentals in order to build a holistic investment thesis.

1. 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.
2. Historical Track Record: What has HAVELLS'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.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Havells India? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.