Why is GRP falling/rising?

Stock Performance and Market Context

GRP Ltd’s stock price increase of ₹163.65 on 11-Dec marks a notable intraday high of ₹1,881, reflecting a 9.92% gain. This surge contrasts with the broader Sensex, which has delivered a modest 4.04% return over the past year, while GRP’s stock has declined by 40.72% during the same period. The stock’s one-week return of 6.92% also outpaces the Sensex’s negative 0.52%, indicating recent positive momentum. However, the one-month return remains negative at -5.88%, suggesting some volatility in the short term.

Despite the recent rally, the stock remains below its 20-day, 50-day, 100-day, and 200-day moving averages, signalling that the current price rise may be a short-term correction rather than a sustained uptrend. The weighted average price indicates that more volume has traded near the lower end of the day’s range, which could imply cautious investor sentiment amid the price rise.

Financial Fundamentals and Valuation

GRP Ltd’s operating profit has demonstrated robust long-term growth, expanding at an annual rate of 103.51%. This strong operational performance is reflected in a Return on Capital Employed (ROCE) of 13.6%, which suggests a fair valuation relative to its capital base. The company’s enterprise value to capital employed ratio stands at 3.3, indicating that the stock is trading at a discount compared to its peers’ historical averages. Furthermore, profits have increased by 11.5% over the past year, despite the stock’s negative price return, resulting in a PEG ratio of 3.2. This divergence between profit growth and share price performance may be attracting value-oriented investors, contributing to the recent price rise.

However, the company’s ability to service its debt remains a concern. With a Debt to EBITDA ratio of 2.56 times and a debt-equity ratio of 1.12 times as of the half-year, GRP faces financial leverage risks. Interest expenses have surged by 41% over nine months, while the latest six-month profit after tax (PAT) has declined by 46.08%, signalling pressure on earnings quality. These factors have likely weighed on investor confidence, limiting broader participation in the stock.

Investor participation appears to be waning, as delivery volumes on 10-Dec fell by 29.38% compared to the five-day average, despite the stock’s liquidity being sufficient for trades of approximately ₹0.02 crore. The limited stake held by domestic mutual funds, which currently hold 0% of the company, may reflect their cautious stance due to the company’s mixed financial signals and subdued long-term sales growth of 14.66% annually over five years.

Conclusion: Why the Price is Rising Despite Challenges

The recent rise in GRP Ltd’s share price on 11-Dec can be attributed primarily to its strong operating profit growth and attractive valuation metrics relative to peers. Investors appear to be responding to the company’s healthy ROCE and profit growth, which contrast with the stock’s depressed price levels over the past year. The stock’s outperformance relative to its sector and the broader market on the day suggests a short-term rebound driven by value-seeking investors.

Nevertheless, the company’s high leverage, declining PAT in recent periods, and flat sales growth temper enthusiasm and explain the stock’s underperformance over the longer term. The subdued participation from institutional investors and falling delivery volumes indicate that the rally may be tentative and subject to volatility. Investors should weigh the company’s operational strengths against its financial risks when considering exposure to GRP Ltd.

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 →