Is Shyamkamal Inv overvalued or undervalued?

Current Valuation Metrics and Interpretation

Shyamkamal Inv trades at a price-to-earnings (PE) ratio of approximately 30.6, which is relatively high compared to traditional benchmarks but moderate within its peer group. The price-to-book (P/B) value stands at 2.06, indicating investors are paying just over twice the company’s net asset value. The enterprise value to EBIT and EBITDA ratios are both around 26.2, suggesting a premium valuation relative to earnings before interest and taxes and depreciation.

However, the company’s PEG ratio is notably low at 0.12, which implies that the stock price is low relative to its earnings growth potential. This is a key factor in the recent upgrade to an attractive valuation grade, as a PEG below 1 typically signals undervaluation when growth prospects are strong.

Dividend yield remains modest at 0.88%, reflecting a conservative payout policy, while return on capital employed (ROCE) and return on equity (ROE) are 1.20% and 6.72% respectively, indicating moderate profitability but room for improvement in capital efficiency.

Peer Comparison Highlights

When compared with peers in the NBFC sector, Shyamkamal Inv’s valuation appears attractive. For instance, Bajaj Finance and Bajaj Finserv are classified as very expensive and expensive respectively, with PE ratios exceeding 34 and significantly higher PEG ratios, indicating stretched valuations relative to growth. Life Insurance companies such as SBI Life Insurance and Life Insurance Corporation are marked as very attractive but trade at much lower PE ratios, reflecting different business models and risk profiles.

Shyamkamal Inv’s EV to EBITDA ratio of 26.23 is higher than some peers like Life Insurance (8.98) but lower than others such as SBI Life Insurance (147.96), suggesting a middle ground valuation. The company’s PEG ratio is substantially lower than most peers, reinforcing the notion that the stock may be undervalued relative to its earnings growth potential.

Stock Price and Market Performance

The current share price of ₹11.35 is below its previous close of ₹12.94 and well off its 52-week high of ₹15.30, though comfortably above the 52-week low of ₹6.73. This price movement reflects recent market volatility and investor caution. Over the past year, Shyamkamal Inv has delivered a 5.88% return, slightly underperforming the Sensex’s 7.32% gain. However, the company has outperformed the Sensex over three years with an 84.25% return compared to 35.33% for the benchmark, highlighting strong medium-term growth.

Shorter-term returns have been weak, with a 9.35% decline over the past week and a 17.03% drop over the last month, contrasting with modest gains in the Sensex. This recent underperformance may present a buying opportunity if the company’s fundamentals remain intact.

Assessing Undervaluation or Overvaluation

Taking all factors into account, Shyamkamal Inv’s valuation appears to lean towards undervaluation, especially given the recent upgrade from fair to attractive. The low PEG ratio is a compelling indicator that the stock price does not fully reflect the company’s earnings growth potential. While the PE ratio is on the higher side, it is justified by the growth prospects and is lower than some of the more expensive peers.

Profitability metrics such as ROCE and ROE are modest, which may explain some investor caution. However, the company’s strong three-year returns and reasonable price multiples relative to growth suggest that the market may be undervaluing its future earnings capacity. The recent price dip could be a temporary reaction to broader market trends rather than company-specific weakness.

Investors should weigh the company’s moderate dividend yield and capital efficiency against its growth potential and sector positioning. Given the NBFC industry’s cyclical nature, a cautious but optimistic stance is warranted.

Conclusion

In summary, Shyamkamal Inv currently presents an attractive valuation opportunity within the NBFC sector. Its low PEG ratio, reasonable price multiples, and solid medium-term returns support the view that it is undervalued relative to its growth prospects. While short-term price volatility and modest profitability metrics advise prudence, the company’s fundamentals and peer comparisons suggest it is not overvalued at present.

Investors seeking exposure to the NBFC space with a focus on growth potential may find Shyamkamal Inv a compelling candidate for further research and consideration.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →