Valuation Metrics Indicate Undervaluation
Examining Agarwal Indl.'s valuation ratios reveals a stock trading at a price-to-earnings (PE) ratio of approximately 13.8, which is modest compared to many of its industry peers. The price-to-book value stands at 1.75, suggesting the market values the company at less than twice its net asset value, a reasonable figure for a capital-intensive sector like petrochemicals.
Enterprise value (EV) multiples further reinforce this perspective. The EV to EBIT ratio is around 12.56, while EV to EBITDA is near 8.68, both indicating a relatively conservative valuation. Additionally, the EV to capital employed ratio of 1.50 and EV to sales of 0.67 highlight that the company is not excessively priced relative to its operational scale and capital base.
Notably, the PEG ratio is reported as zero, which typically suggests either no expected earnings growth or a data anomaly; however, given the other valuation metrics, it points towards a stock priced attractively relative to its earnings potential.
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Comparative Peer Analysis
When compared with its peers in the petrochemicals industry, Agarwal Indl. stands out as very attractively valued. For instance, Manali Petrochem is classified as very expensive with a PE ratio exceeding 22 and an EV to EBITDA ratio above 12. Similarly, Multibase India trades at a PE above 23 and an EV to EBITDA of 16.6, both considerably higher than Agarwal Indl.'s multiples.
Other companies such as T N Petro Products and Nexxus Petro are labelled expensive, with PE ratios below Agarwal Indl. but EV to EBITDA ratios that are comparable or slightly lower. Several peers are marked as risky due to losses, which further accentuates Agarwal Indl.'s relative stability and valuation appeal.
These comparisons suggest that Agarwal Indl. is priced more conservatively than many of its competitors, offering investors a potentially undervalued opportunity within the sector.
Financial Performance and Returns
From a profitability standpoint, Agarwal Indl. demonstrates solid returns on capital. The latest return on capital employed (ROCE) is approximately 11.9%, while return on equity (ROE) is near 12.7%. These figures indicate efficient utilisation of capital and shareholder funds, supporting the case for a sound investment.
However, the stock's recent price performance has been lacklustre. Year-to-date, the share price has declined by nearly 40%, significantly underperforming the Sensex, which has gained over 9% in the same period. Over the past year, the stock is down by around 27%, while the benchmark index rose by 7%. This underperformance may reflect sectoral headwinds or company-specific challenges but also contributes to the current attractive valuation.
Longer-term returns tell a more positive story, with five-year gains exceeding 800%, far outpacing the Sensex's 93% rise. This suggests that despite recent setbacks, Agarwal Indl. has delivered substantial wealth creation over time.
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Price Range and Market Sentiment
The current market price of Agarwal Indl. hovers around ₹768, close to its 52-week low of ₹765.80, while the 52-week high was ₹1,383.15. This wide trading range indicates significant volatility and a recent downtrend. The stock’s price has also declined slightly in the last week and month, contrasting with modest gains in the broader market.
Such price behaviour may reflect investor caution amid sectoral uncertainties or broader economic factors. Nonetheless, the valuation metrics and strong fundamentals suggest that the stock is trading below its intrinsic value, presenting a potential buying opportunity for value-oriented investors.
Conclusion: Undervalued with Strong Fundamentals
In summary, Agarwal Indl. appears undervalued based on multiple valuation ratios, peer comparisons, and its robust return metrics. The recent downgrade in share price and underperformance relative to the Sensex have enhanced its attractiveness from a valuation standpoint. While short-term price volatility and sector risks remain, the company’s solid fundamentals and reasonable multiples support the view that it is trading below fair value.
Investors seeking exposure to the petrochemicals sector with a focus on value may find Agarwal Indl. a compelling candidate, especially given its very attractive valuation grade. However, as with all investments, due diligence on sector dynamics and company-specific factors is advisable before committing capital.
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