Permanent Magnets Ltd Downgraded to Strong Sell Amid Weak Financials and Bearish Technicals

Quality Assessment: Weakening Profitability and Growth

Permanent Magnets Ltd, operating within the Other Electrical Equipment sector, has exhibited disappointing financial results in recent quarters. The company reported a sharp decline in profitability for Q2 FY25-26, with Profit Before Tax (PBT) falling by 69.63% to ₹2.32 crores and Profit After Tax (PAT) dropping 66.6% to ₹2.37 crores. This marks a continuation of a negative trend following flat results in the previous quarter ending June 2025.

Return on Capital Employed (ROCE) has also deteriorated, standing at a low 10.92% for the half-year period, with the latest figure at 9.3%. Such returns are below industry averages and raise concerns about the company’s ability to generate adequate returns on invested capital. Over the past five years, operating profit growth has been a modest 3.09% annually, indicating limited long-term expansion.

These factors contribute to a downgraded quality grade, reflecting the company’s struggle to maintain profitability and growth momentum in a competitive engineering environment.

Valuation: Expensive Despite Discount to Peers

Despite the weak financial performance, Permanent Magnets Ltd is currently trading at a relatively high valuation. The Enterprise Value to Capital Employed (EV/CE) ratio stands at 4.6, signalling a premium valuation relative to the company’s capital base. This is considered expensive given the subdued earnings growth and declining profitability.

However, the stock price is trading at a discount compared to the average historical valuations of its peers, which may offer some valuation cushion. The current market price is ₹871.00, close to the day’s high of ₹872.00, but well below the 52-week high of ₹1,229.90. The 52-week low is ₹600.00, indicating significant price volatility over the past year.

Investors should note that the stock’s one-year return is negative at -16.01%, underperforming the Sensex’s 7.85% gain over the same period. This underperformance, combined with expensive valuation metrics, has contributed to the downgrade in the valuation rating.

Financial Trend: Negative Momentum and Earnings Decline

The financial trend for Permanent Magnets Ltd has been predominantly negative over the past year. The company’s profits have declined by 6.8% in the last 12 months, compounding the weak quarterly results. This downward trajectory is reflected in the stock’s returns, which have underperformed key benchmarks such as the BSE500 index over one year, three years, and the last three months.

Despite a strong long-term return of 414.02% over five years and an extraordinary 4,366.67% over ten years, recent performance signals caution. The one-year return of -16.01% contrasts sharply with the Sensex’s positive 7.85% return, highlighting the company’s recent struggles to keep pace with the broader market.

Additionally, the company’s low average debt-to-equity ratio of 0.05 times suggests a conservative capital structure, which may limit financial risk but also indicates limited leverage to fuel growth.

Technical Analysis: Shift to Mildly Bearish Outlook

Technical indicators have played a significant role in the recent downgrade. The technical trend has shifted from sideways to mildly bearish, signalling increased downside risk in the near term. Key technical metrics include:

• MACD: Weekly readings are bearish, while monthly indicators remain mildly bullish, suggesting short-term weakness amid some longer-term support.


• RSI: Both weekly and monthly Relative Strength Index readings show no clear signal, indicating a lack of momentum in either direction.


• Bollinger Bands: Both weekly and monthly bands are mildly bearish, reflecting increased volatility and downward pressure on price.


• Moving Averages: Daily moving averages are mildly bearish, reinforcing the short-term negative trend.


• KST (Know Sure Thing): Weekly KST is bearish, while monthly KST remains mildly bullish, mirroring the MACD pattern.


• Dow Theory: No clear trend is established on weekly or monthly charts, indicating uncertainty in market direction.

Overall, the technical picture suggests caution for investors, with short-term signals pointing to potential further declines despite some longer-term stabilisation.

Stock Price and Market Capitalisation

Permanent Magnets Ltd’s current market price of ₹871.00 is marginally up 0.11% from the previous close of ₹870.00. The stock has traded in a range between ₹871.00 and ₹872.00 today, reflecting limited intraday volatility. The company holds a Market Cap Grade of 4, indicating a mid-sized market capitalisation relative to its sector peers.

Despite its size, domestic mutual funds hold no stake in the company, which may reflect a lack of confidence or limited institutional interest. This absence of mutual fund ownership could be a signal to investors regarding the perceived risk and growth prospects of the stock.

Comparative Performance: Long-Term Gains Overshadowed by Recent Weakness

While Permanent Magnets Ltd has delivered exceptional returns over the long term, with a 10-year return of 4,366.67% and a five-year return of 414.02%, recent performance has been disappointing. The stock’s one-year return of -16.01% starkly contrasts with the Sensex’s 7.85% gain, and its three-year return of 34.93% lags behind the Sensex’s 41.57% over the same period.

This divergence highlights the challenges the company faces in maintaining its growth trajectory amid evolving market conditions and sector dynamics.

Conclusion: Downgrade Reflects Heightened Risks and Limited Upside

The downgrade of Permanent Magnets Ltd to a Strong Sell rating is driven by a confluence of factors. Weakening financial performance, including sharply declining profits and low returns on capital, undermines the company’s quality rating. Valuation metrics remain expensive relative to earnings growth, despite a discount to peer valuations. The financial trend is negative, with underperformance against benchmarks and declining profitability. Finally, technical indicators have shifted to a mildly bearish stance, signalling increased near-term risk.

Investors should approach the stock with caution, considering the limited institutional interest and the company’s recent struggles to generate sustainable growth. While the long-term track record remains impressive, the current outlook suggests that Permanent Magnets Ltd faces significant headwinds that may weigh on its share price in the foreseeable future.

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