Sakthi Sugars Downgraded to 'Sell' by MarketsMOJO: High Debt and Pledged Shares Raise Concerns

Sakthi Sugars, a microcap company in the sugar industry, has recently been downgraded to a 'Sell' by MarketsMOJO on October 7th, 2024. This decision was based on several factors that indicate a weak long-term fundamental strength for the company.
One of the main concerns is the high debt of the company, with a debt-equity ratio of 6.5 times. This means that the company has a low ability to service its debt, as shown by its high debt to EBITDA ratio of 13.90 times. Additionally, Sakthi Sugars has reported losses, resulting in a negative return on equity.

Another red flag is the high percentage of pledged promoter shares, which currently stands at 76.79%. In times of market downturns, this can put additional downward pressure on the stock prices. Moreover, the proportion of pledged holdings has increased by 6.02% over the last quarter.

In the past year, Sakthi Sugars has underperformed the market, with a return of only 20.23% compared to the BSE 500 index's return of 33.39%. However, the company did show positive results in June 2024, with its operating profit to interest ratio at 2.41 times, net sales at Rs 393.59 crore, and PBDIT at Rs 65.39 crore.

From a technical standpoint, the stock is currently in a mildly bullish range, with its MACD and OBV technical factors also showing a bullish trend. However, with a ROCE of only 4.1, the stock is considered to have a fair valuation with a 1.4 enterprise value to capital employed. It is also trading at a discount compared to its average historical valuations.

Despite the recent downgrade, Sakthi Sugars has shown a 49.5% increase in profits over the past year, while its stock has generated a return of 20.23%. Investors should carefully consider these factors before making any investment decisions regarding this microcap company in the sugar industry.