Why is Azad Engineering Ltd falling/rising?

Recent Price Movement and Market Context

On 12 January, Azad Engineering Ltd closed at ₹1,545.00, down ₹21.60 or 1.38% from the previous session. This decline is part of a broader trend, with the stock having fallen by 8.52% over the past week, significantly underperforming the Sensex’s modest 1.83% decline in the same period. The stock has been on a consecutive five-day losing streak, with intraday lows touching ₹1,511.95, representing a 3.49% drop within the day. Trading volumes have also shifted, with a weighted average price indicating that more shares were exchanged closer to the day’s low, signalling selling pressure.

Azad Engineering’s current trading levels are below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, underscoring a bearish technical outlook. Investor participation appears to be waning, as delivery volumes on 9 January fell by 9.34% compared to the five-day average, suggesting reduced conviction among buyers. Despite this, liquidity remains adequate for trades up to ₹0.31 crore, ensuring that the stock remains accessible to market participants.

Fundamental Strengths Amidst Price Weakness

Despite the recent price weakness, Azad Engineering exhibits several positive fundamental attributes. The company maintains a low average debt-to-equity ratio of 0.09 times, indicating a conservative capital structure that reduces financial risk. Its net sales have demonstrated robust long-term growth, expanding at an annual rate of 32.60%, which reflects strong operational momentum.

Moreover, the company has reported positive results for seven consecutive quarters, with quarterly net sales reaching a peak of ₹145.63 crore, PBDIT at ₹52.55 crore, and profit before tax excluding other income at ₹34.18 crore. These figures highlight consistent profitability and operational efficiency. Institutional investors hold a significant 25.6% stake in the company, and their shareholding has increased by 0.54% over the previous quarter, signalling confidence from sophisticated market participants.

Valuation and Performance Challenges

However, the stock’s valuation metrics and market returns present a less favourable picture. Azad Engineering’s return on equity (ROE) stands at 7.5%, which is modest relative to its price-to-book value of 6.7 times, suggesting the stock is expensive despite trading at a discount to its peers’ historical averages. The company’s price-to-earnings-to-growth (PEG) ratio of 2.3 further indicates that the stock’s price growth is not fully justified by its earnings growth, which may deter value-conscious investors.

Performance-wise, the stock has underperformed key benchmarks over multiple time horizons. Over the past year, it has delivered a negative return of 7.35%, contrasting sharply with the Sensex’s 8.40% gain. The stock has also lagged behind the broader BSE500 index over the last three years, one year, and three months, reflecting persistent underperformance. This disconnect between rising profits—up 51% over the past year—and declining share price suggests that investors are cautious, possibly due to concerns about valuation sustainability and growth prospects.

Conclusion: Why Azad Engineering’s Stock is Falling

In summary, Azad Engineering Ltd’s recent share price decline is primarily driven by its expensive valuation metrics and sustained underperformance relative to market benchmarks, despite strong operational results and healthy profit growth. The stock’s fall over the past week and month, coupled with subdued investor participation and technical weakness below key moving averages, reflects market scepticism about the company’s ability to justify its current price levels. While institutional investors remain supportive, broader market participants appear cautious, weighing the company’s growth prospects against its high price-to-book ratio and modest ROE.

Investors considering Azad Engineering should carefully balance its solid fundamentals and consistent quarterly results against the valuation concerns and recent price trends before making investment decisions.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →