Why is HMT falling/rising?

Recent Price Performance and Market Comparison

HMT’s recent price action has been notably weak, with the stock falling 8.73% over the past week, in stark contrast to the Sensex’s modest gain of 0.79% during the same period. This underperformance extends over longer time frames as well, with the stock declining 12.60% in the last month and 19.49% year-to-date, while the Sensex has advanced 0.95% and 9.08% respectively. Over the past year, HMT’s shares have lost 21.35%, whereas the benchmark index has risen by 10.47%. These figures highlight a significant divergence between HMT’s stock and broader market trends, signalling investor concerns about the company’s prospects.

Technical Indicators and Trading Activity

From a technical standpoint, HMT is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This persistent weakness in price levels suggests a bearish sentiment among traders and investors. Despite this, there has been a notable increase in investor participation, with delivery volumes on 20 Nov rising by 75.25% compared to the five-day average. This heightened activity, however, has not translated into price support, indicating that selling pressure remains dominant.

Fundamental Weaknesses Driving the Decline

At the core of HMT’s share price decline lies its deteriorating fundamental position. The company reports a negative book value, signalling that its liabilities exceed its assets, which undermines investor confidence in its long-term viability. Over the past five years, HMT’s net sales have contracted at an annualised rate of 10.59%, while operating profit has stagnated at zero growth. This lack of growth is compounded by the company’s high debt levels, although the average debt-to-equity ratio is reported as zero, suggesting complexities in its capital structure that may be concerning to investors.

More troubling are the company’s recent quarterly results, which have been negative for three consecutive quarters. Net sales for the latest quarter stood at ₹25.83 crore, down 23.5% compared to the previous four-quarter average. Profit before tax excluding other income was a loss of ₹55.23 crore, declining 10.6%, while net profit after tax was a loss of ₹39.08 crore, down 10.2%. These figures underscore ongoing operational challenges and an inability to generate profits, which weigh heavily on the stock’s valuation.

Risk Profile and Market Sentiment

HMT’s negative EBITDA further accentuates the risk perceived by the market. The stock is trading at valuations that are considered risky relative to its historical averages. Over the past year, the company’s profits have fallen by 20.8%, closely mirroring the 21.35% decline in its share price. This correlation suggests that the market is pricing in the company’s deteriorating earnings outlook.

Investor sentiment is also reflected in the minimal stake held by domestic mutual funds, which own only 0.02% of the company. Given their capacity for detailed research and due diligence, this negligible holding may indicate a lack of confidence in HMT’s business model or valuation at current levels.

Long-Term Performance Context

While HMT’s short- and medium-term performance has been disappointing, it is worth noting that the stock has delivered strong returns over longer horizons. Over three years, the stock has gained 64.56%, outperforming the Sensex’s 39.39% rise. Over five years, the stock’s return of 248.41% significantly exceeds the benchmark’s 94.23%. This suggests that despite recent setbacks, the company has demonstrated the capacity for substantial growth in the past. However, the current negative earnings trend and weak sales growth raise questions about the sustainability of this performance going forward.

Conclusion

In summary, HMT Ltd’s share price decline as of 21-Nov is primarily driven by its weak financial fundamentals, including negative book value, declining sales, consecutive quarterly losses, and negative EBITDA. The stock’s underperformance relative to the broader market and sector, combined with bearish technical indicators and cautious investor sentiment, further contribute to the downward pressure. While the company has shown strong long-term returns historically, the recent financial results and market dynamics suggest continued challenges ahead, making the stock a risky proposition for investors at present.

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