Why is Davangere Sugar falling/rising?

Recent Price Movement and Market Comparison

On 09 Dec, the stock closed at ₹3.86, down by 0.52% from the previous session. This decline continues a short-term downward trend, with the stock falling for two consecutive days and registering a cumulative loss of 0.77% over this period. When compared to the broader market, Davangere Sugar has significantly underperformed. Over the past week, the stock dropped by 6.54%, whereas the Sensex declined by a modest 0.55%. The disparity is even more pronounced over longer horizons; the stock has lost 33.82% in the last year, while the Sensex gained 3.87%. This stark contrast underscores the stock’s struggles amid a generally positive market environment.

Despite the recent weakness, the stock remains above its 20-day, 50-day, 100-day, and 200-day moving averages, suggesting some underlying support. However, it is currently trading below its 5-day moving average, indicating short-term selling pressure. Investor participation has also waned, with delivery volumes on 08 Dec falling by over 53% compared to the five-day average, signalling reduced enthusiasm among shareholders.

Fundamental Challenges Weighing on the Stock

Davangere Sugar’s fundamental metrics reveal a company grappling with weak long-term growth and operational inefficiencies. Its Return on Capital Employed (ROCE) stands at a modest 6.85%, reflecting limited profitability relative to the capital invested. Over the past five years, net sales have grown at an annual rate of just 6.84%, while operating profit has expanded at 15.12%, figures that fall short of robust growth expectations for the sector.

Debt servicing remains a significant concern, with a high Debt to EBITDA ratio of 4.65 times, indicating considerable leverage and potential strain on cash flows. The company’s interest expenses have surged by over 31% in the latest six-month period, reaching ₹16.39 crores, further pressuring profitability. Additionally, the debtors turnover ratio has declined to 5.47 times, signalling slower collection of receivables and potential liquidity issues.

These operational headwinds have translated into negative financial results for three consecutive quarters, undermining investor confidence. Although the stock trades at a discount relative to its peers’ historical valuations, this valuation gap appears to reflect the market’s cautious stance on the company’s prospects.

Declining Promoter Confidence and Market Sentiment

Investor sentiment towards Davangere Sugar has been further dampened by a notable reduction in promoter holdings. Over the previous quarter, promoters have decreased their stake by 4.45%, now holding 47.87% of the company. Such a decline in promoter confidence often signals concerns about future business prospects and can exacerbate negative market sentiment.

The stock’s underperformance relative to the broader market and sector peers, combined with weak financial results and rising debt costs, has contributed to its falling price. While the company’s profits have inched up by 2% over the past year, this modest improvement has not been sufficient to offset the broader challenges it faces.

In summary, Davangere Sugar’s recent price decline is primarily driven by weak long-term fundamentals, increasing financial leverage, deteriorating operational metrics, and reduced promoter confidence. These factors have collectively weighed on investor sentiment, resulting in the stock’s sustained underperformance against market benchmarks.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →