Olympic Cards Ltd Downgraded to Strong Sell Amid Technical and Fundamental Concerns

Quality Assessment: Weakening Fundamentals Despite Recent Growth

Olympic Cards has reported encouraging top-line growth in the latest six months, with net sales rising by 39.96% to ₹6.41 crores. The company also posted its highest quarterly profit after tax (PAT) of ₹3.31 crores and an earnings per share (EPS) of ₹2.03, signalling operational improvements. However, these gains are overshadowed by the company’s precarious financial structure. The debt-equity ratio stands alarmingly high at 18.67 times, indicating a heavy reliance on borrowed funds. This is compounded by a Debt to EBITDA ratio of 13.16 times, which highlights the company’s limited ability to service its debt obligations effectively.

Moreover, Olympic Cards continues to report losses on a broader scale, resulting in a negative return on equity (ROE). The company’s negative EBITDA further emphasises its risky financial position. These factors collectively contribute to a weak long-term fundamental strength grade, undermining investor confidence despite recent positive earnings momentum.

Valuation: Elevated Risk Amidst Historical Underperformance

The stock currently trades at ₹2.91, down 2.68% from the previous close of ₹2.99, and remains closer to its 52-week low of ₹2.51 than its high of ₹4.21. Over the past year, Olympic Cards has delivered a negative return of -19.17%, significantly underperforming the BSE500 index, which gained 13.47% during the same period. This divergence is notable given the company’s profits have risen by 113.9% year-on-year, suggesting a disconnect between earnings growth and market valuation.

Its PEG ratio stands at zero, reflecting the absence of sustainable earnings growth relative to its price. The stock’s current valuation is considered risky compared to its historical averages, which has contributed to the downgrade in its mojo grade from Sell to Strong Sell. The market cap grade remains low at 4, indicating limited market capitalisation strength relative to peers.

Financial Trend: Mixed Signals Amidst Positive Quarterly Results

While Olympic Cards has posted positive results for two consecutive quarters, the broader financial trend remains concerning. The company’s return profile over various time horizons reveals a pattern of underperformance. Year-to-date returns stand at -9.06%, and over one year, the stock has declined by 19.17%, contrasting sharply with the Sensex’s 10.44% gain over the same period. Even over longer horizons such as five and ten years, the stock has lagged significantly behind the benchmark, with a 10-year return of -85.80% compared to Sensex’s 256.13%.

This long-term underperformance, despite recent quarterly improvements, signals structural challenges in sustaining growth and profitability. The company’s high debt levels and negative EBITDA further complicate its financial trajectory, limiting its ability to capitalise on operational gains.

Technical Analysis: Downgrade Driven by Weakening Momentum

The most significant factor behind the downgrade to Strong Sell is the deterioration in technical indicators. The technical trend has shifted from mildly bullish to sideways, reflecting uncertainty and lack of clear upward momentum. Key technical signals include a bearish Moving Average Convergence Divergence (MACD) on both weekly and monthly charts, and mildly bearish Bollinger Bands over the same periods.

Relative Strength Index (RSI) readings on weekly and monthly timeframes show no clear signal, indicating a lack of strong directional bias. Moving averages on the daily chart remain mildly bullish, but this is offset by mixed signals from other indicators such as the KST oscillator, which is bullish weekly but bearish monthly. Dow Theory assessments also present a mixed picture, mildly bearish weekly but mildly bullish monthly.

Overall, the technical landscape suggests limited upside potential in the near term, reinforcing the downgrade decision. The stock’s recent price action, with a day’s high of ₹2.98 and low of ₹2.86, remains close to its lower trading range, underscoring the cautious stance among traders.

Shareholding and Industry Context

Olympic Cards operates within the printing and publishing segment of the diversified consumer products industry. The company’s promoter group remains the majority shareholder, maintaining significant control over strategic decisions. Despite this, the company’s financial and technical challenges have weighed heavily on investor sentiment.

Given the stock’s current mojo score of 29.0 and a mojo grade of Strong Sell, investors are advised to exercise caution. The downgrade from Sell to Strong Sell reflects a comprehensive reassessment of the company’s prospects, factoring in weak long-term fundamentals, risky valuation, and deteriorating technical momentum.

Conclusion: A Cautious Outlook Amidst Mixed Signals

Olympic Cards Ltd’s downgrade to Strong Sell encapsulates a complex interplay of factors. While recent quarterly results show operational improvements, the company’s high leverage, negative EBITDA, and poor long-term returns paint a challenging picture. The technical indicators further reinforce a cautious stance, with momentum indicators signalling limited upside potential.

Investors should weigh these risks carefully against the backdrop of the company’s sector and broader market trends. The stock’s persistent underperformance relative to benchmarks such as the Sensex and BSE500 suggests that recovery may be protracted. Until there is a marked improvement in financial health and technical signals, Olympic Cards remains a high-risk proposition within the diversified consumer products space.

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