SPML Infra Ltd Upgraded to Sell on Technical Improvements Despite Lingering Fundamental Concerns

Quality Assessment: Weak Fundamentals Persist

SPML Infra continues to grapple with weak long-term fundamentals, which weigh heavily on its overall quality rating. The company’s net sales have declined at an annualised rate of -4.91% over the past five years, signalling contraction rather than growth in its core business. Profitability metrics remain subdued, with an average Return on Equity (ROE) of just 2.31%, indicating limited efficiency in generating returns from shareholders’ funds.

Moreover, the company’s capital structure is a concern, with a high average Debt to Equity ratio of 3.55 times, underscoring significant leverage. This elevated debt burden increases financial risk, especially in volatile market conditions. Adding to investor unease, 25.88% of promoter shares are pledged, which could exert additional downward pressure on the stock price if market conditions deteriorate further.

Despite these challenges, some recent quarterly financials show signs of operational improvement. The company reported a Debt-Equity ratio of 0.44 times in the half-year period, its lowest in recent times, and an Operating Profit to Interest coverage ratio of 22.00 times for the quarter, indicating better interest servicing capability. Profit Before Tax excluding other income stood at Rs 8.21 crore, the highest recorded in recent quarters.

Valuation: Attractive but Reflective of Risks

SPML Infra’s valuation metrics suggest the stock is trading at a discount relative to its peers. The company’s Return on Capital Employed (ROCE) is modest at 3.4%, yet it boasts an Enterprise Value to Capital Employed ratio of just 1.7, signalling undervaluation in the eyes of some investors. The Price/Earnings to Growth (PEG) ratio is notably low at 0.2, which typically indicates that the stock is undervalued relative to its earnings growth potential.

However, the discount in valuation is largely a reflection of the company’s weak fundamentals and high leverage, which continue to temper investor enthusiasm. Over the past year, SPML Infra’s stock price has declined by 13.43%, underperforming the broader BSE500 index which gained 7.89% over the same period. This divergence highlights the market’s cautious stance on the company’s prospects despite its attractive valuation multiples.

Financial Trend: Mixed Signals Amidst Profit Growth

While the long-term sales trend remains negative, recent quarterly results indicate a positive shift in profitability. The company’s profits have surged by 201.3% over the past year, a remarkable turnaround that contrasts with its declining sales. This profit growth is a key factor supporting the upgrade in the investment rating, suggesting operational efficiencies or cost controls are beginning to bear fruit.

Nevertheless, the overall financial trend remains mixed. The company’s high debt levels and weak ROE continue to pose risks. The low Debt-Equity ratio in the half-year period and strong interest coverage ratio provide some comfort, but these improvements need to be sustained and translated into consistent top-line growth to alter the long-term outlook positively.

Technical Analysis: Key Driver of Upgrade

The most significant catalyst for the rating upgrade is the improvement in SPML Infra’s technical indicators. The technical grade has shifted from bearish to mildly bearish, reflecting a more constructive market sentiment. Key technical metrics show a nuanced picture:

• MACD remains bearish on the weekly chart but is mildly bearish on the monthly, indicating a potential easing of downward momentum.


• Relative Strength Index (RSI) shows no clear signal on both weekly and monthly timeframes, suggesting the stock is neither overbought nor oversold.


• Bollinger Bands indicate a mildly bearish stance on both weekly and monthly charts, but the narrowing bands hint at reduced volatility.


• Moving averages on the daily chart are mildly bearish, signalling cautious optimism among traders.


• KST (Know Sure Thing) oscillator is bearish weekly but mildly bearish monthly, consistent with a gradual improvement.


• Dow Theory shows no clear trend weekly but mildly bearish monthly, reflecting indecision in the broader market context.


• On-Balance Volume (OBV) is mildly bullish weekly, indicating accumulation by investors, though monthly OBV shows no trend.

These technical signals collectively suggest that while the stock remains under pressure, the intensity of bearishness has diminished, supporting a more positive near-term outlook. This technical improvement has been a decisive factor in upgrading the Mojo Grade from Strong Sell to Sell.

Stock Price and Market Performance

SPML Infra’s current market price stands at ₹189.90, up significantly from the previous close of ₹166.35, marking a day change of 14.16%. The stock’s 52-week high is ₹321.70, while the 52-week low is ₹137.00, indicating considerable volatility over the past year.

In terms of returns, the stock has outperformed the Sensex over shorter periods: it gained 11.97% in the past week compared to a flat Sensex, and 4.89% over the past month versus a 1.31% decline in the Sensex. Year-to-date, SPML Infra has returned 7.56%, outperforming the Sensex’s negative 1.94%. However, over the last year, the stock has underperformed with a -13.43% return compared to the Sensex’s 8.47% gain.

Longer-term returns tell a different story, with SPML Infra delivering exceptional gains of 633.20% over three years and 1062.18% over five years, far outpacing the Sensex’s 39.07% and 70.43% respectively. This highlights the stock’s potential for significant appreciation over extended periods despite recent setbacks.

Conclusion: Upgrade Reflects Technical Recovery Amid Fundamental Challenges

The upgrade of SPML Infra Ltd’s investment rating from Strong Sell to Sell is primarily driven by a marked improvement in technical indicators, signalling a potential stabilisation in the stock’s price action. While the company’s financial fundamentals remain weak, with high leverage, declining sales, and low profitability, recent quarterly profit growth and improved interest coverage ratios provide some optimism.

Valuation metrics suggest the stock is attractively priced relative to peers, but this discount largely reflects the risks embedded in the company’s financial profile. Investors should weigh the technical recovery against the persistent fundamental headwinds before considering exposure.

SPML Infra’s mixed performance relative to the broader market underscores the importance of a cautious approach. The stock’s long-term returns have been impressive, but recent underperformance and high promoter pledge levels warrant vigilance.

Overall, the rating upgrade to Sell from Strong Sell recognises a tentative turnaround in market sentiment and technical trends, but the company’s underlying challenges mean it remains a cautious proposition for investors at this stage.

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