Why is Dilip Buildcon Ltd. falling/rising?

Recent Price Movement and Market Performance

The stock has been under pressure for several sessions, marking a consecutive four-day decline that has resulted in an 8.03% loss over this period. On the day in question, the share price touched an intraday low of Rs 430.05, representing a 5.06% drop from the previous close. Notably, the weighted average price indicates that a larger volume of shares traded closer to the day’s low, signalling selling pressure. Furthermore, Dilip Buildcon is trading 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 has also diminished, with delivery volumes on 12 Feb falling by 32.64% compared to the five-day average. This decline in trading activity suggests waning interest from shareholders, which often exacerbates downward price movements. Despite the stock’s liquidity being sufficient for moderate trade sizes, the current market dynamics have favoured sellers.

Fundamental Challenges Weighing on the Stock

While Dilip Buildcon boasts a return on capital employed (ROCE) of 11.7%, which is considered attractive, the company’s long-term fundamentals reveal underlying weaknesses. Over the past five years, net sales have grown at a negligible annual rate of 0.04%, and operating profit has increased by just 0.62% annually. This sluggish growth contrasts sharply with the broader market and peers, limiting investor enthusiasm.

Moreover, the company’s ability to service its debt is a concern, with a high Debt to EBITDA ratio of 5.75 times. This elevated leverage increases financial risk, especially in a challenging economic environment. The flat quarterly results further exacerbate these concerns: profit before tax excluding other income (PBT less OI) for the quarter stood at a loss of Rs 42.04 crore, a steep decline of 159.48%. Net sales for the quarter also fell by 17.45% to Rs 2,137.90 crore, while interest expenses for the nine months rose by 22.61% to Rs 1,166.77 crore, indicating rising financing costs.

Despite these negatives, the stock has delivered a 5.47% return over the past year and has seen profits rise by 110.6%, resulting in a low PEG ratio of 0.1. Additionally, the stock trades at a discount relative to its peers’ historical valuations, which may offer some valuation appeal to long-term investors. The majority shareholding by promoters also suggests stable ownership.

Comparative Performance and Outlook

When benchmarked against the Sensex, Dilip Buildcon’s recent performance has lagged considerably. Over the past week, the stock declined by 5.34%, compared to the Sensex’s modest 1.14% fall. The one-month and year-to-date returns also underperform the benchmark, with losses of 8.07% and 9.44% respectively, versus the Sensex’s declines of 1.20% and 3.04%. Although the stock has outperformed over a three-year horizon with a gain of 102.11%, this is overshadowed by a 17.45% loss over five years, while the Sensex gained 60.30% in the same period.

These figures highlight the stock’s volatility and the challenges it faces in sustaining long-term growth. The combination of weak sales growth, rising interest costs, and disappointing quarterly results has dampened investor confidence, leading to the recent price decline.

In summary, Dilip Buildcon’s share price fall on 13-Feb is primarily driven by disappointing quarterly results, weak long-term growth metrics, and reduced investor participation. While valuation metrics and profit growth over the past year offer some positives, the prevailing fundamental and technical weaknesses have weighed heavily on the stock’s performance.

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 →