Rico Auto Industries Downgraded to 'Sell' by MarketsMOJO: Weak Fundamentals and Declining Performance

Rico Auto Industries, a smallcap company in the auto ancillary industry, has recently been downgraded to a 'Sell' by MarketsMOJO on May 2, 2024. This decision was based on several factors that indicate 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 5.39%, which is considered low. Additionally, the company has shown poor long-term growth with only a 9.96% annual growth in Net Sales and 7.38% in Operating Profit over the last 5 years. Furthermore, Rico Auto Industries has a high Debt to EBITDA ratio of 3.59 times, indicating a low ability to service debt.

The company's recent financial results for December 2023 also reflect a decline in performance. The Profit After Tax (PAT) has fallen by -15.4% and the Net Sales have reached their lowest at Rs 523.52 crore. The Interest expenses have also increased, reaching their highest at Rs 16.23 crore.

Another concerning factor is that despite being a smallcap company, domestic mutual funds hold only 0% of the company's shares. This could signify that they are not comfortable with the company's current price or its business.

On the other hand, there are some bullish factors for the stock, such as its technical position in a Mildly Bullish range and multiple indicators like MACD, Bollinger Band, and KST showing positive signs. The company also has an attractive valuation with a ROCE of 7.7 and a 1.8 Enterprise value to Capital Employed. Moreover, the stock is currently trading at a discount compared to its average historical valuations.

In the past year, Rico Auto Industries has generated a return of 92.08%, outperforming the BSE 500 index. Its profits have also risen by 39%, resulting in a PEG ratio of 1, which is considered favorable. This indicates that the company has a market-beating performance in both the long-term and near-term.

In conclusion, while Rico Auto Industries may have some positive indicators, the overall weak fundamental strength and recent downgrade by MarketsMOJO suggest that it may be a risky investment at this time. Investors should carefully consider all factors before making any decisions regarding this stock.