Bharat Rasayan Limited (NSE:BHARATRAS), a ₹25.8b small-cap, is a chemicals company operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. In addition to cyclicality, chemicals companies face the issue of environmental concerns. This is a key risk that investors have to keep in mind when looking at stocks such as Bharat Rasayan due to the risky nature of its activities, which may impact future cash flows. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 18% in the upcoming year , and a whopping growth of 48% over the next couple of years. However this rate still came in below the growth rate of the Indian stock market as a whole. Is the chemicals industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether Bharat Rasayan is lagging or leading its competitors in the industry.
What’s the catalyst for Bharat Rasayan’s sector growth?
Altogether the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be vastly competitive and consolidation seems to be a natural trend. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered growth in the twenties, though still underperforming the wider Indian stock market. Bharat Rasayan leads the pack with its impressive earnings growth of 94% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Bharat Rasayan poised to deliver a 23% growth over the next couple of years compared to the industry’s 18%. This growth is a median of profitable companies of 25 Chemicals companies in IN including Vidhi Specialty Food Ingredients, DCM Shriram and Tata Chemicals. This growth may make Bharat Rasayan a more expensive stock relative to its peers.
Is Bharat Rasayan and the sector relatively cheap?
The chemicals sector’s PE is currently hovering around 16.99x, in-line with the Indian stock market PE of 18.04x. 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 13% compared to the market’s 9.5%, potentially illustrative of past tailwinds. On the stock-level, Bharat Rasayan is trading at a higher PE ratio of 23.94x, making it more expensive than the average chemicals stock. In terms of returns, Bharat Rasayan generated 36% in the past year, which is 23% over the chemicals sector.
Bharat Rasayan’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 Bharat Rasayan 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 chemicals companies. However, before you make a decision on the stock, I suggest you look at Bharat Rasayan’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 BHARATRAS’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 Bharat Rasayan? 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 past 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 firstname.lastname@example.org.