Kerala Ayurveda Downgraded to 'Sell' by MarketsMOJO Due to High Debt and Weak Fundamentals

Kerala Ayurveda, a microcap company in the pharma industry, has recently been downgraded to a 'Sell' by MarketsMOJO on May 13, 2024. This decision was based on several factors, including the company's high debt and weak long-term fundamental strength. With a debt-to-equity ratio of 13.5 times, Kerala Ayurveda's long-term growth has been poor, with net sales growing at an annual rate of 9.89% and operating profit remaining at 0% over the last 5 years.
In addition, the company's return on capital employed (ROCE) is at -0.1, making its valuation expensive with an enterprise value to capital employed ratio of 5.6. However, the stock is currently trading at a discount compared to its average historical valuations. Despite generating a return of 136.64% in the past year, the company's profits have fallen by -3%.

On a positive note, Kerala Ayurveda has shown promising results in the quarter ending December 2023, with its net sales reaching a high of Rs 26.32 crore and operating profit to interest ratio at 1.66 times. The company's stock is also technically in a mildly bullish range, with multiple factors such as MACD, Bollinger Band, and KST indicating a bullish trend.

The majority shareholders of Kerala Ayurveda are its promoters, and the company has consistently generated returns over the last 3 years. In fact, it has outperformed BSE 500 in each of the last 3 annual periods. However, with the recent downgrade by MarketsMOJO, investors may want to carefully consider their investment in this microcap pharma company.