Why is Chandni Machines falling/rising?

Recent Price Movement and Market Performance

Chandni Machines has been under pressure in recent weeks, with the stock falling sharply by 9.57% over the past week and a staggering 35.36% decline in the last month. This contrasts sharply with the broader Sensex, which has gained 0.95% over the same one-month period. The stock’s underperformance is further highlighted by its 21 consecutive days of losses, during which it has shed 38.44% in value. Despite this short-term weakness, the stock has delivered impressive long-term returns, with a 30.26% gain over the past year and an extraordinary 980.81% rise over five years, significantly outpacing the Sensex’s 84.97% gain in that timeframe.

Trading Activity and Investor Sentiment

Investor participation appears to be waning, as evidenced by a sharp 87.87% drop in delivery volume on 11 Dec compared to the five-day average. This decline in trading activity suggests reduced investor interest or confidence in the stock at current levels. The stock opened and traded flat at ₹74.90 on 12-Dec, indicating a lack of buying momentum. While the share price remains above its 50-day, 100-day, and 200-day moving averages, it is trading below the short-term 5-day and 20-day averages, signalling near-term weakness.

Fundamental Weaknesses Weighing on the Stock

Despite the stock’s strong historical returns, Chandni Machines is grappling with significant fundamental challenges. The company reported a drastic fall in net sales, declining by 74.32% over the latest six months to ₹25.90 crores. This sharp contraction in revenue has severely impacted profitability, with the latest quarterly PAT plunging by 453.3% to a loss of ₹1.06 crore compared to the previous four-quarter average. The company’s return on capital employed (ROCE) is also at a low 5.80%, underscoring inefficient capital utilisation.

Moreover, the company is operating at a loss, with a weak ability to service its debt. The average EBIT to interest ratio stands at a concerning 0.75, indicating that earnings before interest and tax are insufficient to cover interest expenses comfortably. Negative EBITDA and operating losses further highlight the company’s fragile financial position. These factors collectively contribute to the stock’s perception as risky, especially when compared to its historical valuations.

Long-Term Performance Versus Current Risks

While Chandni Machines has outperformed the BSE500 index in each of the last three annual periods and delivered a remarkable 212.73% return over three years, the recent financial results paint a contrasting picture. The company’s profits have fallen by 106.9% over the past year, signalling deteriorating earnings quality despite the stock’s price appreciation. This divergence between price performance and fundamental health is a cause for concern among investors, likely contributing to the ongoing sell-off.

Conclusion: Why Chandni Machines Is Falling

The decline in Chandni Machines’ share price on 12-Dec and over the preceding weeks is primarily driven by weak operational performance and deteriorating financial fundamentals. The company’s significant drop in net sales, mounting losses, and poor debt servicing capacity have undermined investor confidence. Despite its impressive long-term returns, the recent negative earnings trajectory and falling investor participation have weighed heavily on the stock. Until the company demonstrates a sustainable turnaround in sales and profitability, the downward pressure on its share price is likely to persist.

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