Why is Jyoti Structures falling/rising?

Stock Performance Against Benchmarks

Jyoti Structures has significantly underperformed the broader market indices over recent periods. In the past week, the stock declined by 14.32%, while the Sensex remained virtually flat with a marginal 0.06% gain. Over the last month, the stock fell 18.50%, contrasting with the Sensex’s 0.82% rise. The year-to-date performance is particularly stark, with Jyoti Structures down 55.32%, whereas the Sensex has gained 8.65%. Even over a one-year horizon, the stock has lost 56.98%, while the benchmark index rose by 7.31%. Although the company’s five-year returns of 263.85% outpace the Sensex’s 90.69%, recent trends indicate a clear deterioration in investor confidence and company fundamentals.

Technical and Trading Indicators

On 24-Nov, the stock traded close to its 52-week low, just 4.83% above the lowest price of ₹10.65. It underperformed its sector by nearly 7% on the day, signalling sector-relative weakness. Jyoti Structures is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, highlighting a sustained downtrend. Additionally, investor participation has waned, with delivery volumes on 21 Nov falling by over 43% compared to the five-day average, suggesting reduced buying interest. Despite this, liquidity remains adequate for moderate trade sizes, indicating that the stock is still accessible to active traders.

Fundamental Challenges and Valuation

Jyoti Structures’ fundamentals reveal a mixed picture. The company’s return on capital employed (ROCE) stands at a modest 1.4%, which is considered fair but not compelling. Its enterprise value to capital employed ratio is also 1.4, indicating the stock is trading at a discount relative to its peers’ historical valuations. Notably, despite the stock’s steep price decline of nearly 57% over the past year, the company’s profits have increased by 61.9%, resulting in a price-to-earnings-to-growth (PEG) ratio of 1.6. This suggests that while earnings growth is positive, the market remains cautious, possibly due to other underlying risks.

Debt Burden and Profitability Concerns

One of the most significant headwinds for Jyoti Structures is its high leverage. The company carries an average debt-to-equity ratio of 112.69 times, an extraordinarily high level that raises concerns about financial stability and risk. Its average return on capital employed over time is only 0.46%, signalling very low profitability relative to the capital invested, including debt. Operating profit growth has been modest, averaging 15.27% annually over the last five years, which may not be sufficient to offset the risks posed by the heavy debt load.

Recent Financial Performance

The company’s recent quarterly results have been lacklustre. Operating cash flow for the year is at a low of ₹-177.29 crores, indicating cash outflows from core operations. The inventory turnover ratio for the half-year is also at a low 5.12 times, suggesting slower movement of stock and potential working capital inefficiencies. Profit after tax for the latest quarter was ₹9.72 crores, down 6.6% compared to the average of the previous four quarters. These factors contribute to the negative sentiment surrounding the stock.

Investor Sentiment and Market Positioning

Despite its size, Jyoti Structures has negligible holdings by domestic mutual funds, which typically conduct thorough research before investing. This absence of institutional backing may reflect concerns about the company’s business prospects or valuation. The stock’s underperformance relative to the BSE500 index over the last three years, one year, and three months further underscores its struggles to keep pace with broader market gains.

Conclusion

Jyoti Structures’ share price decline on 24-Nov reflects a confluence of factors including weak recent financial results, high debt levels, and poor long-term growth prospects. The stock’s sustained underperformance against benchmarks and sector peers, combined with falling investor participation and technical weakness, signals continued caution among market participants. While the company’s profit growth over the past year is a positive, it has not been sufficient to offset concerns about leverage and cash flow. Investors should carefully weigh these risks before considering exposure to Jyoti Structures.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →