Why is Eternal Ltd falling/rising?

Recent Price Performance and Market Context

Eternal Ltd has underperformed significantly in the short term, with a one-week loss of 8.34% compared to the Sensex’s modest 1.73% decline. Over the past month, the stock has dropped 5.61%, again lagging behind the benchmark’s 3.24% fall. Year-to-date, the stock is down 2.88%, slightly better than the Sensex’s 3.57% decline, but the recent three-day consecutive fall has wiped out nearly 10% of its value. Intraday trading on 20-Jan saw the stock touch a low of ₹268, with heavier volumes traded near this low point, signalling selling pressure.

Adding to the bearish sentiment, Eternal is trading below all key moving averages – 5-day, 20-day, 50-day, 100-day, and 200-day – indicating a sustained downtrend. Despite this, liquidity remains adequate, with the stock’s trading volume supporting sizeable transactions worth over ₹33 crores, ensuring active market participation.

Fundamental Strengths Amidst Weakness

On the positive side, Eternal Ltd boasts impressive long-term growth, with net sales expanding at an annual rate of 78.23%. The company has delivered consistent returns over the last three years, outperforming the BSE500 index annually and generating a robust 424.17% gain over three years. Institutional investors hold a commanding 68.95% stake, reflecting confidence from well-informed market participants who typically conduct thorough fundamental analysis.

Financial Challenges and Profitability Concerns

Despite these strengths, the company’s financials reveal significant challenges that have weighed heavily on investor sentiment. Eternal Ltd’s ability to service its debt is notably weak, with a Debt to EBITDA ratio of -1.00 times, signalling that earnings before interest, taxes, depreciation, and amortisation are insufficient to cover debt obligations. This has contributed to negative returns on capital employed (ROCE), reflecting inefficient use of capital and operational difficulties.

The latest quarterly results for September 2025 further underscore these issues. Profit before tax (excluding other income) plunged by 37.4% to a loss of ₹223 crores compared to the previous four-quarter average. Net profit after tax also declined by 13.0% to ₹65 crores. Notably, non-operating income accounted for an outsized 272.87% of profit before tax, indicating that core business operations are underperforming and the company is relying heavily on non-recurring or ancillary income sources to bolster profitability.

These factors have contributed to a 74.7% drop in profits over the past year, despite the stock delivering a 12.04% return in the same period. This divergence suggests that the stock’s valuation may be stretched relative to its underlying earnings performance, increasing perceived risk among investors.

Investor Sentiment and Outlook

The combination of weak quarterly earnings, high debt levels, and negative operating profits has led to increased risk perception around Eternal Ltd’s stock. The recent surge in delivery volume by over 100% compared to the five-day average suggests that investors are actively offloading shares, contributing to the price decline. While the company’s long-term growth trajectory and institutional backing remain positives, the immediate concerns over profitability and financial stability have overshadowed these factors.

In summary, Eternal Ltd’s share price is falling primarily due to deteriorating earnings quality, high leverage, and disappointing quarterly results that have raised doubts about the company’s ability to sustain growth and service its debt. Investors appear cautious, reflected in the stock’s underperformance relative to the broader market and sector peers over the past week and month.

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 →