Surana Telecom and Power Ltd Downgraded to Strong Sell Amid Weak Fundamentals and Bearish Technicals

Quality Assessment: Weakening Profitability and Debt Servicing

Surana Telecom’s quality metrics continue to raise concerns. The company has exhibited a negative compound annual growth rate (CAGR) of -207.28% in operating profits over the past five years, indicating a severe erosion in core earnings capacity. This decline is compounded by a poor EBIT to interest coverage ratio averaging -1.12, signalling that the firm struggles to meet its debt obligations from operating earnings. Such a ratio well below 1 is a red flag for credit risk and financial stability.

Return on equity (ROE) remains subdued at an average of 7.08%, reflecting low profitability relative to shareholders’ funds. This modest ROE, combined with flat quarterly financial performance in Q2 FY25-26, where profit after tax (PAT) fell by 66.1% to ₹0.76 crore, underscores the company’s inability to generate sustainable returns. Operating cash flow for the year is also at a low ₹3.50 crore, further highlighting cash generation challenges.

Valuation: Risky and Overvalued Relative to Historical Benchmarks

Despite the weak fundamentals, Surana Telecom’s stock trades at valuations that appear risky compared to its historical averages. The price-to-earnings-to-growth (PEG) ratio stands at a low 0.1, which might superficially suggest undervaluation; however, this is misleading given the negative earnings trajectory and deteriorating profitability. The stock’s 52-week high was ₹29.32, but it currently trades near ₹19.69, closer to its 52-week low of ₹15.50, reflecting significant price erosion.

Over the past year, the stock has generated a negative return of -19.30%, starkly underperforming the BSE500 index, which posted a positive 5.24% return over the same period. This divergence highlights the market’s lack of confidence in the company’s prospects. The stock’s market cap grade remains low at 4, consistent with its micro-cap status and limited liquidity.

Financial Trend: Flat to Negative Performance with Operational Challenges

The company’s recent quarterly results have been flat, with Q2 FY25-26 showing a sharp decline in PAT and operating cash flows at their lowest levels. The debtors turnover ratio for the half-year period stands at a low 2.64 times, indicating slower collection cycles and potential liquidity pressures. These operational inefficiencies contribute to the negative operating profit trend, which remains a significant risk factor.

While the stock has delivered strong long-term returns over 3, 5, and 10 years (78.68%, 301.84%, and 209.11% respectively), recent performance has been disappointing. The year-to-date return is -15.85%, and the one-year return is -19.30%, both substantially lagging the Sensex’s positive returns of 8.39% and 7.62% respectively. This recent underperformance reflects the company’s deteriorating fundamentals and market sentiment.

Technical Analysis: Shift to Mildly Bearish Indicators

The downgrade to Strong Sell is largely driven by a shift in technical indicators from mildly bullish to mildly bearish. Key momentum and trend indicators paint a cautious picture:

• MACD on weekly and monthly charts is bearish or mildly bearish, signalling weakening momentum.


• Bollinger Bands on both weekly and monthly timeframes are bearish, suggesting increased volatility and downward pressure.


• Moving averages on the daily chart remain mildly bullish, but this is outweighed by negative weekly and monthly trends.


• KST (Know Sure Thing) indicator is mildly bearish on weekly and monthly scales, reinforcing the negative momentum.


• Dow Theory shows no clear trend weekly and mildly bearish monthly, indicating uncertainty and potential for further downside.


• On-balance volume (OBV) is mixed, with no trend weekly but mildly bullish monthly, suggesting some accumulation but insufficient to reverse the overall bearish bias.

Price action today reflects this technical weakness, with the stock closing at ₹19.69, down 5.29% from the previous close of ₹20.79. The intraday range was ₹19.64 to ₹20.71, showing limited buying interest near current levels.

Market Position and Shareholding

Surana Telecom operates within the power sector, specifically in the cable industry segment. Despite its long-term growth in stock price over the past decade, the company’s current market cap grade of 4 reflects its micro-cap status and limited market presence. Promoters remain the majority shareholders, which may provide some stability but also concentrates control.

Given the combination of weak financial trends, risky valuation, and bearish technical signals, the downgrade to a Strong Sell rating is justified. Investors should exercise caution and consider the elevated risks associated with this stock in the current market environment.

Conclusion: Elevated Risks and Limited Upside

Surana Telecom and Power Ltd’s downgrade to Strong Sell by MarketsMOJO reflects a comprehensive reassessment of its quality, valuation, financial trends, and technical outlook. The company’s deteriorating operating profits, poor debt servicing ability, and flat recent financial results undermine confidence in its near-term prospects. Coupled with bearish technical indicators and significant underperformance relative to the broader market, the stock presents a risky proposition for investors.

While the company has demonstrated strong long-term returns historically, the current environment suggests limited upside and heightened downside risk. Investors are advised to monitor developments closely and consider alternative opportunities with stronger fundamentals and technical momentum.

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