Kennametal India Ltd Valuation Shifts Signal Elevated Price Premium

Valuation Metrics Signal Elevated Premium

As of 4 February 2026, Kennametal India Ltd trades at a price of ₹2,201.90, up 11.77% on the day from a previous close of ₹1,970.05. The stock’s 52-week range spans ₹1,932.10 to ₹2,745.10, indicating recent volatility but a strong upward trajectory in the short term. However, the valuation metrics paint a more cautious picture.

The company’s price-to-earnings (P/E) ratio stands at 44.28, a level that categorises it as very expensive within the industrial manufacturing sector. This is a significant premium compared to several peers, such as Craftsman Auto (P/E 51.86, fair valuation), Ircon International (P/E 24.22, fair), and Shriram Pistons (P/E 22.42, expensive). Even when compared to other very expensive peers like Triveni Turbine (P/E 50.95) and Inox India (P/E 43.17), Kennametal’s P/E remains at the higher end of the spectrum.

Similarly, the price-to-book value (P/BV) ratio of 6.48 further underscores the stock’s premium status. This elevated P/BV ratio suggests that investors are paying a substantial premium over the company’s net asset value, reflecting expectations of sustained earnings growth or superior return on equity.

Enterprise value multiples also reinforce this narrative. The EV to EBIT ratio is 34.29, and EV to EBITDA is 25.61, both considerably higher than the sector averages, indicating that the market is pricing in strong operational profitability and cash flow generation. The EV to capital employed ratio of 8.00 and EV to sales of 3.91 further confirm the expensive valuation stance.

Comparative Analysis with Peers

When benchmarked against its industrial manufacturing peers, Kennametal India’s valuation premium becomes more pronounced. For instance, Craftsman Auto, rated as fairly valued, trades at a P/E of 51.86 but has a significantly lower PEG ratio of 0.65 compared to Kennametal’s 44.28, indicating that Kennametal’s price is less justified by earnings growth prospects. Triveni Turbine, another very expensive stock, has a PEG ratio of 5.97, far below Kennametal’s, suggesting that Kennametal’s valuation is stretched relative to its growth potential.

Other peers such as Sansera Engineering and Inox India also carry expensive or very expensive tags but maintain lower EV to EBITDA multiples and PEG ratios, signalling more balanced valuations. MTAR Technologies, while very expensive with a P/E of 150.52, operates in a different niche with distinct growth dynamics, making direct comparisons less straightforward.

In contrast, companies like Power Mech Projects and PNC Infratech are rated as very attractive with P/E ratios of 20.23 and 14.22 respectively, highlighting the valuation gap within the sector and the potential opportunity cost for investors holding Kennametal India at current levels.

Financial Performance and Return Metrics

Despite the valuation concerns, Kennametal India’s operational metrics remain robust. The company’s return on capital employed (ROCE) is a healthy 21.59%, while return on equity (ROE) stands at 14.63%. These figures reflect efficient capital utilisation and reasonable profitability, supporting the premium valuation to some extent.

Dividend yield at 1.82% is modest but consistent, offering some income cushion for investors. However, the PEG ratio of 44.28 suggests that the market’s expectations for future earnings growth are exceptionally high, which may be difficult to sustain over the long term.

Stock Performance Relative to Sensex

Kennametal India has delivered mixed returns relative to the benchmark Sensex over various time horizons. The stock outperformed the Sensex significantly over the past week (+12.88% vs +2.30%) and month (+3.83% vs -2.36%), as well as year-to-date (+5.09% vs -1.74%). However, over the one-year period, the stock’s return of 0.47% lagged the Sensex’s 8.49% gain. Over longer horizons, Kennametal has delivered solid outperformance, with five-year returns of 138.42% compared to the Sensex’s 66.63%, though the 10-year return of 210.13% trails the Sensex’s 245.70%.

Valuation Grade Downgrade and Market Implications

Reflecting these valuation dynamics, MarketsMOJO downgraded Kennametal India’s mojo grade from Hold to Sell on 24 December 2025, assigning a mojo score of 48.0. The market cap grade remains modest at 3, indicating a mid-sized company with limited scale compared to larger industrial peers.

This downgrade signals caution for investors, highlighting that the stock’s current price may not adequately compensate for the risks associated with its stretched valuation. The sharp increase in the P/E and P/BV ratios to very expensive levels suggests that the market has priced in significant growth expectations, which may be vulnerable to any earnings disappointments or broader market corrections.

Investor Takeaways and Outlook

Investors considering Kennametal India Ltd should weigh the company’s strong operational metrics and historical return record against the current valuation premium. The elevated P/E and P/BV ratios, combined with a high PEG ratio, suggest that the stock’s price attractiveness has diminished compared to historical norms and peer averages.

While the company’s robust ROCE and ROE indicate quality business fundamentals, the market’s expectations embedded in the price appear aggressive. This raises the risk of valuation contraction if growth disappoints or if broader market sentiment shifts.

Given the downgrade to a Sell rating by MarketsMOJO and the very expensive valuation grade, investors may prefer to adopt a cautious stance or explore more attractively valued industrial manufacturing stocks with comparable quality metrics.

Long-term investors with conviction in Kennametal’s growth story may consider holding but should remain vigilant to valuation risks and monitor quarterly earnings closely for signs of sustained momentum or emerging headwinds.

Conclusion

Kennametal India Ltd’s recent valuation shift from expensive to very expensive highlights a significant change in price attractiveness. Despite solid returns and strong profitability metrics, the stock’s elevated multiples relative to peers and historical averages warrant caution. The downgrade to a Sell mojo grade reflects this valuation risk, suggesting that investors should carefully assess whether the premium price is justified by future growth prospects.

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