Bombay Burmah Trading Corporation Downgraded to Sell Amidst Technical and Financial Concerns

Quality Assessment: Flat Financial Performance and Growth Challenges

Bombay Burmah’s recent quarterly results for Q2 FY25-26 reveal a flat financial performance, with net sales and operating profit growth rates averaging 7.84% and 7.76% annually over the past five years respectively. While these figures indicate moderate expansion, they fall short of the robust growth typically expected in the FMCG sector. The company’s operating cash flow has notably deteriorated, registering a negative ₹92.18 crores annually, which raises concerns about cash generation efficiency.

Profitability has also weakened, with the latest quarter’s PAT at ₹239.69 crores reflecting a 14.1% decline compared to the previous four-quarter average. This contraction in earnings, coupled with flat sales, signals challenges in sustaining operational momentum. Despite a strong return on capital employed (ROCE) of 42.2%, the company’s growth trajectory appears subdued, prompting a reassessment of its quality grade.

Valuation: Expensive Yet Discounted Relative to Peers

Bombay Burmah’s valuation metrics present a mixed picture. The stock trades at an enterprise value to capital employed ratio of 1.9, which is considered very expensive relative to historical benchmarks. However, when compared to its FMCG peers, the stock is currently trading at a discount to their average historical valuations, suggesting some relative value remains.

Despite this, the company’s share price has underperformed significantly over the past year, declining by 13.79%, while its profits have fallen by 12.1%. This underperformance contrasts with the broader market, where the BSE500 index has delivered a positive 5.24% return over the same period. The valuation premium combined with deteriorating earnings growth has contributed to the downgrade in the valuation rating.

Financial Trend: Weak Profitability and Cash Flow Pressures

The financial trend for Bombay Burmah has weakened, as evidenced by flat quarterly results and declining profitability. The operating cash flow’s negative ₹92.18 crores is a significant red flag, indicating the company is generating insufficient cash from its core operations. This is compounded by a 14.1% drop in PAT in the latest quarter, signalling margin pressures or rising costs.

On a longer-term basis, the company’s net sales and operating profit growth rates of around 7.8% annually are modest and lag behind many FMCG competitors. While the company maintains a low debt to EBITDA ratio of 0.28 times, reflecting strong debt servicing ability, the lack of robust growth and cash flow generation undermines confidence in its financial trajectory.

Technical Analysis: Shift from Mildly Bullish to Sideways and Bearish Signals

The downgrade in Bombay Burmah’s technical grade was the primary driver behind the overall rating change. The technical trend has shifted from mildly bullish to sideways, reflecting a loss of upward momentum in the stock price. Key technical indicators paint a cautious picture:

• MACD: Weekly readings are bearish, while monthly readings remain mildly bearish, indicating weakening momentum over both short and medium terms.


• RSI: Weekly RSI shows no clear signal, but the monthly RSI remains bullish, suggesting some underlying strength over longer periods.


• Bollinger Bands: Both weekly and monthly bands are bearish, signalling increased volatility and downward pressure on price.


• Moving Averages: Daily moving averages are mildly bullish, but this is insufficient to offset the broader bearish signals.


• KST (Know Sure Thing): Weekly is bearish and monthly mildly bearish, reinforcing the negative momentum.


• Dow Theory: Weekly readings are mildly bearish, while monthly readings are mildly bullish, indicating mixed signals but a tilt towards caution.


• On-Balance Volume (OBV): Weekly shows no trend, but monthly OBV is bullish, suggesting some accumulation by investors over the longer term.

These mixed but predominantly bearish technical signals have led to a downgrade in the technical grade, which has had a significant impact on the overall Mojo Grade, now rated as Sell with a score of 41.0.

Stock Performance Relative to Market Benchmarks

Bombay Burmah’s stock price currently stands at ₹1,832.65, marginally down from the previous close of ₹1,834.15. The 52-week high is ₹2,345.00, while the 52-week low is ₹1,521.00, indicating a wide trading range but recent weakness. The stock has underperformed the Sensex and BSE500 indices over multiple time frames:

• One week return: -3.66% vs Sensex -1.02%


• One month return: -0.08% vs Sensex -1.18%


• Year-to-date return: -13.50% vs Sensex +8.39%


• One year return: -13.79% vs Sensex +7.62%


• Three year return: +101.96% vs Sensex +38.54%


• Five year return: +41.70% vs Sensex +77.88%


• Ten year return: +278.33% vs Sensex +224.76%

While the long-term returns over three and ten years remain impressive, the recent underperformance and negative returns over the past year highlight near-term challenges for the stock.

Investor Sentiment and Institutional Holdings

Despite Bombay Burmah’s sizeable market capitalisation and established presence in the FMCG sector, domestic mutual funds hold a modest stake of only 1.54%. Given that mutual funds typically conduct thorough on-the-ground research, this limited exposure may indicate a lack of conviction in the company’s near-term prospects or valuation at current levels.

This relatively low institutional interest, combined with the stock’s recent underperformance and technical weakness, suggests cautious sentiment among professional investors.

Conclusion: Downgrade Reflects Multiple Headwinds

The downgrade of Bombay Burmah Trading Corporation Ltd from Hold to Sell by MarketsMOJO is driven by a confluence of factors. The technical indicators have shifted to a more bearish and sideways trend, undermining short-term price momentum. Financially, the company’s flat quarterly results, declining profitability, and negative operating cash flow raise concerns about its growth sustainability and operational efficiency.

Valuation remains expensive on an absolute basis, despite a relative discount to peers, and the stock has underperformed key market benchmarks over the past year. Limited institutional interest further dampens the outlook. While the company’s strong ROCE and low debt levels provide some cushion, these positives are outweighed by the broader challenges.

Investors should approach Bombay Burmah with caution, considering the downgrade and the mixed signals from technical and fundamental analyses.

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