Why is GRP Ltd falling/rising?

Recent Price Movement and Market Comparison

GRP Ltd has experienced a significant decline in its share price over the past year, with a staggering negative return of 50.16%, while the Sensex has gained 6.56% in the same period. The stock’s underperformance is not limited to the yearly timeframe; it has also fallen 11.55% in the last week compared to the Sensex’s modest 2.43% decline. Year-to-date, the stock has dropped 11.03%, more than double the Sensex’s 4.32% fall. This persistent weakness is further underscored by the stock’s six consecutive days of losses, accumulating an 11.79% decline in that span.

On 23-Jan, the stock touched an intraday low of ₹1,578, down 5.64% from the previous close, with trading volumes concentrated near this low price point. The weighted average price indicates that sellers dominated the session, pushing the price downward. Additionally, GRP Ltd is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling sustained bearish momentum.

Sector and Investor Activity

The rubber products sector, to which GRP Ltd belongs, has also seen a decline of 2.4% on the day, indicating broader sectoral weakness. However, GRP’s underperformance exceeds that of its sector, suggesting company-specific factors are at play. Notably, investor participation has increased, with delivery volumes rising by 54.54% on 22-Jan compared to the five-day average, indicating heightened trading activity amid the price decline. Despite this, the stock remains liquid enough for moderate trade sizes, facilitating continued investor engagement.

Financial Performance and Valuation Considerations

While GRP Ltd has demonstrated healthy long-term operating profit growth at an annual rate of 103.51%, and maintains a Return on Capital Employed (ROCE) of 13.6%, these positives have not translated into share price gains. The stock trades at a discount relative to its peers’ historical valuations, with an enterprise value to capital employed ratio of 2.9, suggesting it may be undervalued on certain metrics. Furthermore, profits have increased by 11.5% over the past year, even as the stock price has halved, resulting in a PEG ratio of 2.7.

Debt Burden and Profitability Challenges

Despite some encouraging financial indicators, GRP Ltd faces significant challenges that have weighed heavily on investor sentiment. The company’s ability to service debt is limited, with a high Debt to EBITDA ratio of 2.56 times and a debt-equity ratio reaching 1.12 times as of the half-year mark. Interest expenses have surged by 41% over nine months, reaching ₹10.18 crores, while profit after tax for the latest six months has declined by 46.08% to ₹3.71 crores. These figures point to rising financial strain and reduced profitability, which have likely contributed to the stock’s sustained decline.

Moreover, the company’s net sales growth over the last five years has been modest at an annual rate of 14.66%, and its average ROCE of 9.64% indicates relatively low returns on total capital employed. This combination of subdued sales growth, high leverage, and declining profits has eroded investor confidence, reflected in the stock’s poor performance relative to the broader market and sector peers.

Market Perception and Institutional Interest

Another factor influencing the stock’s fall is the apparent lack of interest from domestic mutual funds, which hold no stake in GRP Ltd despite its size. Given that mutual funds typically conduct thorough research before investing, their absence may signal concerns about the company’s valuation or business prospects. This lack of institutional endorsement can exacerbate selling pressure and limit demand for the stock.

Conclusion: Why GRP Ltd Is Falling

In summary, GRP Ltd’s share price decline on 23-Jan and over recent periods is primarily driven by concerns over its high debt levels, declining profitability, and weak sales growth. Despite some positive long-term profit growth and a relatively fair valuation, the company’s financial strain, evidenced by rising interest costs and shrinking net profits, has overshadowed these strengths. The stock’s consistent underperformance against the Sensex and its sector, combined with the absence of institutional support, has further dampened investor sentiment. These factors collectively explain why GRP Ltd’s shares have been falling and continue to face downward pressure in the market.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →