Liberty Shoes Ltd Downgraded to Strong Sell Amid Deteriorating Financial and Technical Trends

Financial Performance: A Sharp Decline

The primary catalyst for the downgrade lies in Liberty Shoes’ worsening financial trend. The company’s financial grade has shifted from negative to very negative, with the financial score plunging from -15 to -21 over the past three months. The quarter ended December 2025 was particularly disappointing, with the company reporting a profit after tax (PAT) of just ₹0.62 crore, representing a steep decline of 81.5% compared to the average of the previous four quarters.

Operating profit before depreciation, interest and taxes (PBDIT) also hit a low of ₹13.24 crore, while operating profit to net sales ratio dropped to 7.32%, the lowest in recent quarters. The operating profit to interest coverage ratio fell to 3.47 times, signalling increased pressure on the company’s ability to service debt. Correspondingly, the debt-equity ratio rose to 0.73 times at the half-year mark, the highest level recorded for Liberty Shoes, indicating a heavier reliance on borrowed funds.

Other operational metrics also deteriorated. The debtors turnover ratio declined to 5.78 times, reflecting slower collections and potential liquidity constraints. Earnings per share (EPS) for the quarter stood at ₹0.35, the lowest in recent history, while profit before tax excluding other income (PBT less OI) dropped to ₹1.13 crore. These figures collectively paint a picture of a company struggling to maintain profitability amid challenging market conditions.

Valuation: Attractive but Risky

Despite the poor financial performance, Liberty Shoes retains a very attractive valuation profile. The company’s return on capital employed (ROCE) stands at 8.8%, and it trades at an enterprise value to capital employed ratio of just 1.6, suggesting that the stock is undervalued relative to its capital base. This valuation discount is notable when compared to peers in the footwear and consumer durables sectors, where historical valuations tend to be higher.

However, this valuation attractiveness is tempered by the company’s weak earnings momentum. Over the past year, Liberty Shoes’ profits have declined by 33.5%, and the stock has generated a negative return of 30.24%, significantly underperforming the BSE Sensex, which gained 9.66% over the same period. The stock’s 52-week high of ₹474.80 contrasts sharply with its current price near ₹263, underscoring the extent of the recent sell-off.

Quality Assessment: Weakening Fundamentals

Liberty Shoes’ quality grade remains poor, reflected in its MarketsMOJO Mojo Score of 29.0 and a Mojo Grade of Strong Sell, downgraded from Sell on 16 February 2026. The company’s long-term growth has been underwhelming, with net sales growing at a modest annual rate of 7.63% over the last five years. This sluggish growth is compounded by three consecutive quarters of negative earnings results, signalling persistent operational challenges.

Return metrics also highlight concerns. The company’s return on capital employed (ROCE) of 8.8% is modest and insufficient to inspire confidence in sustained profitability. The elevated debt-equity ratio and declining operating profit margins further erode the company’s fundamental strength. These factors collectively justify the downgrade in quality assessment and reinforce the negative outlook.

Technical Indicators: Bearish Momentum Intensifies

Technical analysis corroborates the deteriorating fundamentals, with Liberty Shoes’ technical trend shifting from mildly bearish to bearish. Key indicators reveal a predominantly negative outlook across multiple timeframes. The Moving Average Convergence Divergence (MACD) is mildly bullish on a weekly basis but bearish monthly, while the Relative Strength Index (RSI) offers no clear signals.

Bollinger Bands indicate bearishness on the weekly chart and mild bearishness monthly. Daily moving averages are firmly bearish, and the Know Sure Thing (KST) indicator confirms bearish momentum on both weekly and monthly charts. Dow Theory analysis shows no clear trend weekly but mild bearishness monthly. On balance, these technical signals suggest continued downward pressure on the stock price.

Volume-based indicators such as On-Balance Volume (OBV) show no trend weekly but a bullish signal monthly, indicating some accumulation at lower levels. However, this is insufficient to offset the broader bearish technical picture. The stock’s recent price action, with a one-week return of -8.13% versus the Sensex’s -0.94%, further emphasises the negative sentiment prevailing among investors.

Comparative Performance and Market Context

Over longer horizons, Liberty Shoes has delivered mixed returns. While the stock has generated a 5-year return of 85.10%, outperforming the Sensex’s 59.83% over the same period, its 10-year return of 95.76% lags significantly behind the Sensex’s 259.08%. More recent performance is troubling, with a 3-year return of 19.11% versus the Sensex’s 35.81%, and a 1-year return of -30.24% compared to the Sensex’s positive 9.66%.

This underperformance highlights the company’s struggle to maintain investor confidence amid deteriorating financials and technicals. The footwear sector, while competitive, has seen other players maintain steadier growth and valuation metrics, leaving Liberty Shoes at a disadvantage.

Outlook and Investor Considerations

Given the comprehensive deterioration in Liberty Shoes’ financial health, operational efficiency, and technical momentum, the downgrade to a Strong Sell rating is well justified. Investors should be cautious, as the company faces significant headwinds including declining profitability, rising leverage, and weak market sentiment.

While the stock’s valuation metrics suggest some upside potential if fundamentals improve, the current trajectory indicates continued challenges. The company’s majority ownership by promoters has not translated into stabilising performance, and the footwear sector’s competitive pressures remain intense.

For investors seeking exposure to the consumer durables or footwear sectors, it may be prudent to consider alternatives with stronger financial trends and more favourable technical setups. Liberty Shoes’ recent performance and outlook suggest it is unlikely to outperform the broader market or its peers in the near term.

Summary

Liberty Shoes Ltd’s downgrade to Strong Sell reflects a confluence of negative factors: a very negative financial trend marked by sharply falling profits and rising debt; an attractive but risky valuation; weakening quality fundamentals; and bearish technical indicators. The stock’s underperformance relative to the Sensex and peers further underscores the challenges ahead. Investors should approach Liberty Shoes with caution and consider more robust alternatives in the footwear space.

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