Lumax Industries Downgraded to 'Sell' by MarketsMOJO Due to Weak Fundamentals and High Debt

Lumax Industries, a smallcap company in the auto ancillary industry, has recently been downgraded to a 'Sell' by MarketsMOJO on August 27, 2024. This decision was based on several factors, including weak long-term fundamental strength, poor growth in net sales and operating profit, and a high debt to EBITDA ratio.
The company's average Return on Capital Employed (ROCE) stands at 9.68%, indicating a weak long-term fundamental strength. Additionally, the net sales have only grown at an annual rate of 9.48% and the operating profit at 3.37% over the last 5 years, showing a lack of growth potential.

Furthermore, Lumax Industries has a high Debt to EBITDA ratio of 2.74 times, indicating a low ability to service debt. In the latest quarter, the company's operating profit to interest ratio was at its lowest at 3.56 times, and the inventory turnover ratio was also at its lowest at 4.53 times. On the other hand, the debt-equity ratio was at its highest at 1.08 times.

However, the stock is currently in a bullish range, and the technical trend has improved from mildly bullish on August 27, 2024. Multiple factors, such as MACD, Bollinger Band, DOW, and OBV, are also bullish for the stock.

With a ROCE of 10.2, the stock has a fair valuation with a 2.5 Enterprise value to Capital Employed. It is also trading at a discount compared to its average historical valuations. However, despite generating a return of 29.94% in the past year, the company's profits have only risen by 11.6%, resulting in a PEG ratio of 1.9.

It is worth noting that the majority shareholders of Lumax Industries are the promoters, which may indicate a lack of interest from other investors. Overall, MarketsMOJO's downgrade to 'Sell' for Lumax Industries is based on the company's weak long-term fundamentals and lack of growth potential.