Why is Fredun Pharma falling/rising?

Recent Price Movement and Market Performance

Fredun Pharmaceuticals has experienced a significant correction over the past week, with its stock price declining by 13.74%, markedly underperforming the broader Sensex index, which fell by only 0.52% in the same period. The stock has been on a downward trajectory for five consecutive days, signalling a phase of profit-taking or short-term selling pressure among investors. On 11-Dec, the stock opened with a gap down of 2.28%, further emphasising the bearish sentiment prevailing in the near term. Intraday, the share price touched a low of ₹1,625, representing a 4.92% drop from previous levels, with heavier trading volume concentrated near this lower price point.

Technical indicators reveal that while the stock remains above its 100-day and 200-day moving averages, it is trading below its 5-day, 20-day, and 50-day averages. This suggests that despite a strong longer-term trend, the short-term momentum has weakened, contributing to the recent price decline. Additionally, investor participation appears to be waning, as evidenced by a 56.17% drop in delivery volume on 10-Dec compared to the five-day average, indicating reduced conviction among buyers during this period.

Strong Fundamentals Underpinning Long-Term Growth

Despite the recent price weakness, Fredun Pharmaceuticals continues to demonstrate impressive fundamental strength. The company has reported healthy long-term growth, with net sales expanding at an annual rate of 39.73% and operating profit surging by 55.03%. Its net profit growth is particularly striking, having increased by 127.87%, supported by six consecutive quarters of positive results. The latest quarterly figures reveal a profit before tax (excluding other income) of ₹13.01 crores, up 71.64%, and net sales of ₹145.30 crores, growing 35.35% year-on-year.

Financial metrics further highlight the company’s operational efficiency, with an operating profit to interest ratio reaching a robust 2.89 times. Return on capital employed (ROCE) stands at a healthy 20.2%, and the enterprise value to capital employed ratio is an attractive 2.9, indicating reasonable valuation levels relative to the company’s asset base. Over the past year, Fredun Pharmaceuticals has delivered a remarkable 125.34% return to shareholders, vastly outperforming the broader market’s modest 4.04% gain over the same period. The company’s PEG ratio of 0.4 suggests that its earnings growth is not fully reflected in its current share price, potentially signalling undervaluation.

Market Position and Risks

While the company’s fundamentals are compelling, certain risks remain. Notably, domestic mutual funds hold no stake in Fredun Pharmaceuticals, which may indicate a lack of institutional endorsement or concerns about valuation or business prospects. Given that mutual funds typically conduct thorough research and due diligence, their absence could be interpreted as a cautionary signal for some investors. This lack of institutional participation might be contributing to the recent decline in investor interest and share price pressure.

Conclusion: Balancing Short-Term Volatility with Long-Term Potential

The recent decline in Fredun Pharmaceuticals’ share price on 11-Dec reflects short-term selling pressure and reduced investor participation rather than a deterioration in the company’s underlying business. While the stock has underperformed the sector and broader market indices in the past week, its long-term growth trajectory remains robust, supported by strong sales, profit growth, and attractive valuation metrics. Investors should weigh the current price weakness against the company’s consistent quarterly performance and market-beating returns over the past year. The absence of domestic mutual fund holdings may warrant caution, but it also presents an opportunity for discerning investors to consider the stock at a discount amid broader market volatility.

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 →