MarketsMOJO Downgrades Nilkamal Stock to 'Sell' Due to Poor Growth Potential

On April 15, 2024, MarketsMOJO downgraded its stock call on Nilkamal, a smallcap company in the plastic products industry, to 'Sell'. This decision was based on several factors that indicate a poor long-term growth potential for the company.

Over the last 5 years, Nilkamal's net sales have only grown at an annual rate of 8.94%, while its operating profit has only increased by 4.76%. In addition, the company's results for December 2023 showed a decline in both PBT (profit before tax) and PAT (profit after tax) by -11.49% and -11.7%, respectively. The debtors turnover ratio for the same period was also at its lowest at 7.15 times.

From a technical standpoint, the stock is currently in a bearish range. The technical trend has worsened from 'Mildly Bearish' on April 15, 2024, and has generated a negative return of -4.78% since then. Multiple indicators such as RSI, MACD, Bollinger Band, and KST all point towards a bearish outlook for the stock.

In the past year, Nilkamal has underperformed the market, generating a return of only 1.20% compared to the BSE 500 index's return of 36.05%. However, the company does have a strong ability to service its debt, with a low debt to EBITDA ratio of 0.59 times. Its ROCE (return on capital employed) is also at a very attractive level of 11.5, with an enterprise value to capital employed ratio of 1.9. This indicates that the stock is currently trading at a discount compared to its historical valuations.

Moreover, while the stock has only generated a return of 1.20% in the past year, its profits have increased by 27.6%. This gives the company a PEG (price/earnings to growth) ratio of 0.8, which is considered to be undervalued.

It is worth noting that Nilkamal has a high institutional holding of 21.25%. This means that these investors have better resources and capabilities to analyze the fundamentals of the company compared to retail investors.

In conclusion, MarketsMOJO's downgrade of Nilkamal's stock call to 'Sell' is based on various factors that suggest a poor long-term growth potential for the company. However, it is important to consider the company's strong ability to service its debt and its attractive valuation compared to its historical averages.