Prime Stock Recommendation: Amplifying Returns with This Diversified Electrical play
Find out why this stock is making its way into our BUY list for the second time!
N V Chandrachoodamani
Chandrachoodamani started his capital market career in mid 2000s with Equity Intelligence India and then worked with several capital market Intermediaries in various roles over the last 15 years. Most of his career experience has been in equity research and PMS. Most recently, he was with MOAT, a PMS firm. He is a graduate in mathematics, a post graduate in finance, and holds a CFP certification. LinkedIn|Twitter
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4 thoughts on “Prime Stock Recommendation: Amplifying Returns with This Diversified Electrical play”
please explain
At Rs. 330, the stock is trading at close to 47 TTM times earnings, a tad lower than its median 10 Yr PE of 52 times. The valuation is not excessive for a Co. growing its earnings at a healthy pace of ~20%+ CAGR with healthy balance sheet and return ratios.
On a forward basis, the PE moderates to 37 times FY26 expected earnings and would sustain this multiple at 15% growth rate beyond FY26.
A caveat here is that FY26 earnings growth may come under threat if weak consumer sentiment and copper price volatility together come to haunt its business. In that case investors may have to look at a longer horizon for return
Welcome your query sir,
On TTM PE, you are right. Multiply consolidated EPS with PE and it is there
On forward earnings, there is NO over-estimation.
Last year, the Co. had 32 Cr in interest cost due to acquisition. Next year, they will save on it as the Co. has turned net debt-free again at the end of Dec’24. This plus a modest growth of 10-11% (equal to nominal GDP growth) can give it a 20% earnings growth in FY26, even without any margin expansion. This is being mentioned in the report itself under “financial performance”.
Beyond that, we expect that the Co. can grow at 15% CAGR. There is NO overestimation again.
This is a Co. that has proven track record of cash generation. Such Cos. put cash to work again for growth (acquisition, product expansion, new segment, etc) and in-fact all top 3 Cos in the sector have demonstrated that – be it Havells or V Guard or Crompton. So, it’s not a biased argument on V Guard, but the sector itself is showing that characteristic
On the caveat on FY26 earnings, volatility in earnings is something that we have to deal with in any Co. at this point of time and we have just highlighted the factors that could contribute to the volatility.
In that case, one need to give a bit more time for returns to come.
On forward PE, it is fair to assume that cash generating Cos. can pull growth higher than nominal GDP growth and a PEG (price earnings to growth) ratio of 2-2.5 is fair for them. To elaborate further, PE is a function of two variables – earnings growth and risk-free interest rate (10 Yr bond yield).
If an invest in Govt. bond will double in 11 years, an investment in a 15% growing Co. (when bought at a PEG of 1 0r 15 PE) will grow 5X in the same 11 years. So, those who are happy with 3X returns from the Co. will buy at a much higher PE and that is how PE goes up. In our country, any Co growing at 15%+ trades at significant premium. This is also because investors are betting on re-investment led growth (organic/acquisitions) also for cash generating Cos with good mgmt.
That is how stocks are priced in our market.
Hope this clarifies
Kindly feel free to write for any further clarification
Thank you
please explain
Can u please explain this (45x TTM earnings -if i multiply current revanue by 45 would i get the share price )
slightly below its 10-year median PE of 52x- where i will find 10 year median pe
Forward PE of 37x based on FY26 expected earnings- where i will find forward pe . please explain this line
The valuation appears reasonable given 20%+ CAGR earnings growth, – please explian this also
please explain
Currently trading at ~45x TTM earnings, slightly below its 10-year median PE of 52x
Forward PE of 37x based on FY26 expected earnings
The valuation appears reasonable given 20%+ CAGR earnings growth, healthy balance sheet, and strong return ratios
Can u please explain this (45x TTM earnings -if i multiply current revanue by 45 would i get the share price )
slightly below its 10-year median PE of 52x- where i will find 10 year median pe
Forward PE of 37x based on FY26 expected earnings- where i will find forward pe . please explain this line
The valuation appears reasonable given 20%+ CAGR earnings growth, – please explian this also
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