Bedmutha Industries Limited (NSE:BEDMUTHA): Risks You Need To Consider Before Buying
For Bedmutha Industries Limited’s (NSEI:BEDMUTHA) shareholders, and also potential investors in the stock, understanding how the stock’s risk and return characteristics can impact your portfolio is important. BEDMUTHA is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose to the same level of market risk, and the broad market index represents a beta value of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
View our latest analysis for Bedmutha Industries
What is BEDMUTHA’s market risk?
With a five-year beta of 0.76, Bedmutha Industries appears to be a less volatile company compared to the rest of the market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, BEDMUTHA appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does BEDMUTHA’s size and industry impact the expected beta?
BEDMUTHA, with its market capitalisation of ₹408.45M, is a small-cap stock, which generally have higher beta than similar companies of larger size. Moreover, BEDMUTHA’s industry, metals and mining, is considered to be cyclical, which means it is more volatile than the market over the economic cycle. As a result, we should expect a high beta for the small-cap BEDMUTHA but a low beta for the metals and mining industry. It seems as though there is an inconsistency in risks portrayed by BEDMUTHA’s size and industry relative to its actual beta value. There may be a more fundamental driver which can explain this inconsistency, which we will examine below.
Is BEDMUTHA’s cost structure indicative of a high beta?
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I test BEDMUTHA’s ratio of fixed assets to total assets in order to determine how high the risk is associated with this type of constraint. BEDMUTHA’s fixed assets to total assets ratio of higher than 30% shows that the company uses up a big chunk of its capital on assets that are hard to scale up or down in short notice. Thus, we can expect BEDMUTHA to be more volatile in the face of market movements, relative to its peers of similar size but with a lower proportion of fixed assets on their books. However, this is the opposite to what BEDMUTHA’s actual beta value suggests, which is lower stock volatility relative to the market.
What this means for you:
BEDMUTHA may be a worthwhile stock to hold onto in order to cushion the impact of a downturn. Depending on the composition of your portfolio, low-beta stocks such as BEDMUTHA is valuable to lower your risk of market exposure, in particular, during times of economic decline. What I have not mentioned in my article here are important company-specific fundamentals such as Bedmutha Industries’s financial health and performance track record. I urge you to complete your research by taking a look at the following:
Financial Health: Is BEDMUTHA’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Past Track Record: Has BEDMUTHA been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of BEDMUTHA’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass 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.
