Why is Hester Biosciences Ltd falling/rising?

Recent Price Movement and Market Performance

On 13 January, Hester Biosciences closed at ₹1,520.00, down ₹24.35 or 1.58% from the previous session. This decline is part of a broader trend, with the stock having fallen for four consecutive days, resulting in a cumulative loss of 6.5% over this period. The intraday low touched ₹1,500, marking a 2.87% drop within the day. Notably, the stock has underperformed its sector by 1.45% today, signalling weaker investor sentiment compared to peers.

The stock’s recent performance contrasts sharply with the Sensex benchmark. Over the past week, Hester Biosciences declined 3.86%, while the Sensex fell by only 1.69%. This underperformance extends over longer horizons as well, with the stock down 5.42% in the last month and 4.52% year-to-date, compared to Sensex declines of 1.92% and 1.87% respectively. Most strikingly, over the last year, the stock has plummeted 30.34%, whereas the Sensex has gained 9.56%. This trend continues over three and five years, where the stock has lagged the benchmark by significant margins.

Technical Indicators and Investor Participation

Technically, Hester Biosciences is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This technical weakness often signals bearish momentum and a lack of near-term buying interest. Supporting this view, delivery volumes on 12 January fell by 26.91% compared to the five-day average, indicating reduced investor participation and liquidity concerns. Despite this, the stock remains sufficiently liquid for modest trade sizes, with a 2% threshold of the five-day average traded value equating to approximately ₹0.02 crore.

Fundamental Strengths and Weaknesses

On the positive side, Hester Biosciences boasts its highest operating cash flow in the year at ₹64.51 crore and a return on capital employed (ROCE) of 10.91% in the half-year period, which is relatively strong. The company’s debt-equity ratio stands at a low 0.63 times, suggesting a conservative capital structure. However, these positives are overshadowed by deeper fundamental concerns.

The company’s long-term operating profit growth has been negative, with a compound annual growth rate (CAGR) of -0.36% over the past five years. This weak growth trajectory undermines confidence in the firm’s ability to generate sustainable earnings. Furthermore, the debt servicing capacity is strained, as evidenced by a high debt-to-EBITDA ratio of 3.73 times, indicating potential financial risk. The average ROCE of 9.10% points to modest profitability relative to the capital employed, which is below what investors typically seek for value creation.

Valuation metrics also raise caution. Despite a ROCE of 7.7, the stock carries a very expensive valuation with an enterprise value to capital employed ratio of 2.8. Although the stock trades at a discount relative to its peers’ historical averages, this has not translated into price appreciation. Interestingly, while profits have surged by 86.8% over the past year, the stock’s price has declined sharply, resulting in a low price-to-earnings-to-growth (PEG) ratio of 0.3. This divergence suggests that the market remains sceptical about the sustainability of profit growth or other underlying risks.

Market Sentiment and Institutional Interest

Investor sentiment appears subdued, with domestic mutual funds holding no stake in the company. Given their capacity for thorough research and due diligence, this absence may reflect discomfort with either the current valuation or the company’s business prospects. The stock’s consistent underperformance relative to the BSE500 index over one year, three years, and the recent quarter further highlights its challenges in delivering shareholder value.

Conclusion: Why the Stock is Falling

In summary, Hester Biosciences Ltd’s share price decline as of 13 January is driven by a combination of weak long-term fundamentals, poor relative performance against market benchmarks, and technical indicators signalling bearish momentum. Despite some operational cash flow strength and profit growth, concerns over debt servicing, low profitability per capital employed, and expensive valuation metrics weigh heavily on investor confidence. The lack of institutional backing further compounds the negative sentiment, resulting in falling prices and subdued trading volumes. Investors seeking exposure in this sector may wish to consider alternative stocks with stronger fundamentals and more favourable market dynamics.

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