Why is Himatsingka Seide Ltd falling/rising?

Recent Price Movement and Market Context

On 06-Jan, Himatsingka Seide Ltd closed at ₹111.80, down by ₹1.00 or 0.89% from the previous session. The stock has been declining for two consecutive days, losing 2.74% over this short period. Intraday trading saw the price dip to a low of ₹110.50, marking a 2.04% fall during the day. Notably, the stock is trading close to its 52-week low, just 3.85% above the lowest price of ₹107.50, signalling sustained weakness in investor sentiment.

The stock’s performance has lagged behind the broader market indices and sector peers. Over the past week, it has declined by 1.06%, while the Sensex gained 0.46%. The one-month return shows a sharper fall of 4.36%, compared to a modest 0.76% decline in the Sensex. Year-to-date, the stock is down 1.84%, underperforming the benchmark’s 0.18% loss. Most strikingly, over the last year, Himatsingka Seide has plummeted 39.52%, whereas the Sensex has risen by 9.10%. This stark contrast highlights the stock’s significant underperformance in both short and long-term horizons.

Technical Indicators and Investor Activity

Technically, the stock is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This consistent weakness across multiple timeframes suggests a bearish trend. However, investor participation has shown some increase, with delivery volumes on 05-Jan rising by 75.62% to 1.82 lakh shares compared to the five-day average. Despite this, the stock remains relatively liquid, supporting trade sizes of approximately ₹0.05 crore based on 2% of the five-day average traded value.

Fundamental Analysis: Valuation and Profitability

From a valuation standpoint, Himatsingka Seide presents a mixed picture. The company’s Return on Capital Employed (ROCE) stands at 6.5%, which is modest but accompanied by a very attractive valuation metric, with an enterprise value to capital employed ratio of 0.8. The stock trades at a discount relative to its peers’ historical valuations, which could appeal to value investors. Furthermore, despite the steep 39.52% decline in share price over the past year, the company’s profits have surged by 86.6%, resulting in a low PEG ratio of 0.2. This indicates that the stock may be undervalued relative to its earnings growth potential.

Challenges Weighing on the Stock

Nevertheless, the company’s fundamental weaknesses have overshadowed these positives. The long-term average ROCE of 7.61% is considered weak, reflecting limited efficiency in generating returns from capital. Net sales growth has been sluggish, expanding at an annual rate of just 6.39% over the last five years, which points to subdued top-line momentum. More concerning is the company’s high leverage, with a Debt to EBITDA ratio of 6.02 times, indicating a strained ability to service debt obligations.

Recent quarterly and half-yearly results have been flat, with operating cash flow for the year at a low ₹235.13 crore. The debtors turnover ratio is also at a low 2.32 times, suggesting slower collection cycles. Additionally, the operating profit to interest coverage ratio stands at a weak 1.31 times, highlighting limited cushion to meet interest expenses. These financial metrics collectively signal operational challenges and financial stress.

Another factor dampening investor confidence is the negligible stake held by domestic mutual funds, which own 0% of the company. Given their capacity for thorough research and due diligence, their absence may reflect discomfort with the company’s valuation or business prospects.

Long-Term Underperformance and Market Sentiment

Over a five-year horizon, Himatsingka Seide’s stock has declined by 25.86%, while the Sensex has surged 76.57%, underscoring the company’s persistent underperformance. Even over three years, the stock’s 39.66% gain trails the Sensex’s 42.01% rise. This pattern of lagging the broader market and sector indices has likely contributed to subdued investor interest and selling pressure.

In summary, the stock’s recent decline is driven by a combination of weak long-term fundamentals, high leverage, flat recent results, and poor relative performance against benchmarks. While valuation metrics suggest some attractiveness, these have not been sufficient to offset concerns about growth prospects and financial health. Consequently, Himatsingka Seide Ltd’s shares continue to face downward pressure amid cautious market sentiment.

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 →