Pochiraju Industries Limited (NSEI:POCHIRAJU), a ₹121.95M small-cap, operates in the consumer staples sector, which has been a consistent performer over time due to its robust consumer demand throughout economic cycles. However, the key uncertainty facing the food product industry specifically is around the change in consumer taste and growth in customer expectation from food producers. The demand is still there but the game is changing – pressure for organic, sustainably sourced, ethically traded and healthy food is growing, spurred by millennials and more conscious consumers. Consumer staple analysts are forecasting for the entire industry, a strong double-digit growth of 14.67% in the upcoming year . Is the food product industry an attractive sector-play right now? Today, I will analyse the industry outlook, and also determine whether Pochiraju Industries is a laggard or leader relative to its consumer staples sector peers. See our latest analysis for Pochiraju Industries
What’s the catalyst for Pochiraju Industries’s sector growth?
Changing tastes in consumer preferences is becoming more disruptive than that of industry competitors. Many consumers now prefer to buy whole, raw ingredients and prepare more of their meals at home. Furthermore, companies that are now emerging are latching on these trends with efficient business models. In the past year, the industry delivered growth in the teens, beating the Indian market growth of 13.52%. Pochiraju Industries lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Pochiraju Industries may be trading cheaper than its peers.
Is Pochiraju Industries and the sector relatively cheap?
Food product companies are typically trading at a PE of 25.5x, relatively similar to the rest of the Indian stock market PE of 28.1x. 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 11.91% compared to the market’s 9.78%, potentially illustrative of past tailwinds. Since Pochiraju Industries’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Pochiraju Industries’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Pochiraju Industries recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the consumer staples industry. However, before you make a decision on the stock, I suggest you look at Pochiraju Industries’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 POCHIRAJU’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 Pochiraju 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!