Why is Hisar Metal Industries Ltd falling/rising?

Recent Price Movement and Market Context

Hisar Metal Industries Ltd opened the day with a gap up, immediately trading at ₹171, which was also the intraday high. The stock demonstrated high volatility throughout the session, with an intraday volatility of 8.44% based on the weighted average price. This price action contrasts with the broader market, as the Sensex declined by 0.39% over the past week, while Hisar Metal gained 6.88% in the same period. Year-to-date, the stock has risen 5.69%, whereas the Sensex has fallen 3.95%, highlighting the stock’s relative strength in recent trading sessions.

Despite this short-term rally, the stock’s longer-term performance remains subdued. Over the past year, Hisar Metal Industries has delivered a negative return of 13.68%, underperforming the Sensex, which gained 8.61% during the same timeframe. Over three and five years, the stock’s returns of 5.85% and 65.94% respectively lag behind the Sensex’s 37.97% and 72.66% gains, indicating persistent challenges in sustaining growth momentum.

Technical Indicators and Trading Patterns

The stock currently trades above its 5-day, 20-day, and 50-day moving averages, signalling short-term bullishness. However, it remains below the 100-day and 200-day moving averages, suggesting that medium to long-term trends have yet to fully turn positive. Notably, investor participation appears to be waning, with delivery volumes on 23 Jan falling by 54.03% compared to the five-day average, which may indicate cautious sentiment despite the price rise.

Fundamental Analysis and Valuation

From a fundamental perspective, Hisar Metal Industries presents a mixed picture. The company’s return on capital employed (ROCE) stands at 8.6%, which is relatively attractive given its enterprise value to capital employed ratio of 1.2. This suggests the stock is trading at a discount compared to its peers’ historical valuations, potentially offering value to investors seeking bargains in the metal industry.

However, the company’s profitability has been under significant pressure. Over the past year, profits have declined by 46%, and the company has reported negative results for 11 consecutive quarters. The profit after tax (PAT) for the nine months ended has shrunk by 45.72% to ₹1.65 crore, while interest expenses have surged by 64.79% to ₹7.63 crore, reflecting rising financial burdens. The low ability to service debt is further underscored by a high Debt to EBITDA ratio of 3.50 times, raising concerns about financial stability.

Operating profit growth has been modest, with a compound annual growth rate (CAGR) of 10.77% over the last five years, which is insufficient to offset the company’s mounting challenges. The half-year ROCE is at a low 9.06%, indicating limited efficiency in generating returns from capital employed.

Market Position and Shareholder Structure

The majority shareholding remains with promoters, which can provide some stability in ownership. Nevertheless, the stock’s consistent underperformance against benchmarks such as the BSE500 over the last three years, coupled with negative returns in each of those annual periods, reflects ongoing operational and market headwinds.

Conclusion: Why the Stock Is Rising Despite Weak Fundamentals

The recent price rise of Hisar Metal Industries Ltd on 27-Jan can be attributed primarily to a short-term technical rebound after three days of decline, combined with an opening gap up and strong intraday volatility. The stock’s outperformance relative to its sector and the broader market has attracted buying interest, possibly from value investors drawn by its discounted valuation metrics and attractive ROCE compared to peers.

However, the rally occurs against a backdrop of weak long-term fundamentals, including declining profits, high debt servicing costs, and persistent negative quarterly results. The stock’s underperformance over the past year and several years highlights structural challenges that may limit sustained upside. Investor caution is evident in falling delivery volumes, suggesting that the recent gains may be driven more by technical factors and short-term sentiment rather than a fundamental turnaround.

In summary, while Hisar Metal Industries Ltd’s stock price is rising currently due to technical momentum and relative valuation appeal, investors should weigh these gains against the company’s ongoing operational difficulties and financial risks before making long-term commitments.

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 →