Why is Incredible Industries Ltd falling/rising?

Intraday Performance and Market Context

Incredible Industries Ltd closed at ₹38.10, up ₹1.10 from the previous close, marking a 2.97% increase as of 08:34 PM on 14-Jan. This rise came after three consecutive days of losses, signalling a short-term trend reversal. The stock outperformed its sector by 1.41% on the day, touching an intraday high of ₹38.10, while also experiencing significant volatility with a 7.32% intraday range. Despite this positive movement, the weighted average price indicates that more volume was traded near the day's low of ₹35.70, suggesting some underlying selling pressure.

However, the stock remains below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—highlighting a prevailing bearish technical backdrop. Investor participation has also waned, with delivery volumes on 13 Jan dropping by over 54% compared to the five-day average, indicating reduced conviction among shareholders.

Fundamental Strengths Supporting the Stock

Despite recent price weakness, Incredible Industries has demonstrated robust operational performance. The company has reported positive results for five consecutive quarters, with profit after tax (PAT) for the latest six months reaching ₹5.21 crores, reflecting a strong growth rate of 43.92%. Additionally, the half-yearly return on capital employed (ROCE) stands at a healthy 11.45%, the highest recorded for the company, while return on equity (ROE) is an attractive 9.4%. These metrics suggest improving efficiency and profitability.

Valuation metrics also favour the stock to some extent. Trading at a price-to-book value of 1.2, Incredible Industries is priced at a discount relative to its peers’ historical averages. The company’s price-to-earnings-to-growth (PEG) ratio is a low 0.2, indicating that the stock may be undervalued in relation to its earnings growth potential. This disconnect between rising profits and subdued share price performance may be attracting value-oriented investors, contributing to the recent uptick in price.

Challenges Weighing on the Stock

Nevertheless, the stock’s longer-term performance remains disappointing. Over the past year, Incredible Industries has delivered a negative return of 15.48%, significantly underperforming the Sensex, which gained 9.00% during the same period. This underperformance extends to the broader BSE500 index, which returned 8.97% over the last year, highlighting the stock’s relative weakness.

Moreover, the company’s average ROCE over the long term is a modest 8.04%, signalling limited capital efficiency. A critical concern is the high level of promoter share pledging, with 68.03% of promoter holdings pledged as collateral. This elevated pledge ratio can exert downward pressure on the stock price, especially in volatile or falling markets, as it raises the risk of forced selling.

Liquidity conditions appear adequate for trading, but the falling delivery volumes suggest cautious investor sentiment. The stock’s recent volatility and trading below all major moving averages further underscore the challenges it faces in regaining sustained upward momentum.

Conclusion: A Stock in Transition

In summary, Incredible Industries Ltd’s recent price rise on 14-Jan reflects a short-term recovery amid a volatile trading environment, supported by improving profitability and attractive valuation metrics. However, the stock’s longer-term underperformance, weak capital efficiency, and high promoter pledge levels continue to pose significant risks. Investors should weigh these factors carefully, recognising that while the company’s fundamentals show promise, market sentiment and structural challenges may limit near-term gains.

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 →