MarketsMOJO Downgrades Nilkamal's Stock Call to 'Sell' Due to Poor Growth Potential and Bearish Indicators

On May 9, 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.

One of the main reasons for the downgrade is the company's stagnant growth over the last 5 years. While its net sales have only grown at an annual rate of 8.94%, 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' to 'Bearish' on May 9, 2024. Multiple indicators such as MACD, Bollinger Band, and KST also suggest a bearish outlook for the stock.

Moreover, Nilkamal has consistently underperformed against the benchmark BSE 500 index over the last 3 years. In the past year alone, the stock has generated a return of -7.36%, significantly lower than the benchmark index.

However, there are some positive aspects to consider. The company has a strong ability to service its debt, with a low Debt to EBITDA ratio of 0.59 times. It also has a very attractive valuation with a ROCE (Return on Capital Employed) of 11.5 and an enterprise value to capital employed ratio of 1.8. Additionally, the stock is currently trading at a discount compared to its average historical valuations. In the past year, while the stock has generated a negative return, its profits have increased by 27.6%, resulting in a PEG (Price/Earnings to Growth) ratio of 0.8.

Another factor to consider is the high institutional holdings of 20.35% in Nilkamal. These investors have better resources and capabilities to analyze the fundamentals of companies, making their investment decisions more reliable.

In conclusion, MarketsMOJO's downgrade of Nilkamal's stock call to 'Sell' is based on the company's poor long-term growth potential and bearish technical indicators. However, there are some positive aspects to consider, such as its strong ability to service debt and attractive valuation. Investors should carefully evaluate these factors before making any investment decisions.