Lumax Industries Downgraded to 'Sell' by MarketsMOJO: Weak Fundamentals and High Debt Raise Concerns

Lumax Industries, a smallcap company in the auto ancillary industry, has recently been downgraded to a 'Sell' by MarketsMOJO on August 5th, 2024. This decision was based on several factors that indicate a weak long-term fundamental strength for the company.
One of the main reasons for the downgrade is the company's average Return on Capital Employed (ROCE) of 9.68%, which is considered low. Additionally, Lumax Industries has shown poor long-term growth with only a 7.34% annual growth in Net Sales and a 3.37% growth in Operating Profit over the last 5 years.

Another concerning factor is the company's high Debt to EBITDA ratio of 2.74 times, indicating a low ability to service debt. This was further highlighted by the company's flat results in March 2024 and the lowest Operating Profit to Interest ratio of 4.53 times.

On the technical side, the stock is currently in a Mildly Bullish range, but there are multiple bullish factors such as MACD, KST, and DOW. However, with a ROCE of 10.2, the stock is considered to have an attractive valuation with a 2.4 Enterprise value to Capital Employed. It is also trading at a discount compared to its average historical valuations.

Despite generating a return of 35.43% in the last year, Lumax Industries' profits have only risen by 4.2%, resulting in a high PEG ratio of 5.6. The majority shareholders of the company are the promoters, and the stock has shown market-beating performance in the long term as well as the near term.

In conclusion, while Lumax Industries may have shown some positive signs in the short term, the overall fundamental strength of the company is weak, leading to its downgrade to a 'Sell' by MarketsMOJO. Investors should carefully consider these factors before making any decisions regarding this smallcap company in the auto ancillary industry.