Why is Kennametal India Ltd falling/rising?

Recent Price Movement and Market Comparison

The stock has underperformed both the broader market and its sector in the short term. Over the past week, Kennametal India’s shares declined by 3.19%, significantly lagging behind the Sensex’s modest 1.02% drop. This underperformance extends to the monthly horizon, with the stock falling 5.63% compared to the Sensex’s 1.18% decline. The year-to-date figures are even more stark, as Kennametal India has lost over 30% of its value, while the Sensex has gained 8.39% during the same period.

On the day in question, the stock touched an intraday low of ₹2,066.50, marking a 2.02% drop from previous levels. It also traded below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling sustained bearish momentum. Despite a surge in delivery volume on 25 Oct, which rose by over 426% compared to the five-day average, investor sentiment remains cautious.

Fundamental Strengths Amidst Weak Price Action

Despite the recent price weakness, Kennametal India exhibits several positive fundamental attributes. The company maintains a low debt-to-equity ratio, effectively zero on average, which reduces financial risk. Furthermore, it has demonstrated robust long-term operational growth, with operating profit expanding at an annual rate of 51.31%. The latest quarterly results for September 2025 were encouraging, with PBDIT reaching a record ₹52.70 crore and operating profit margin hitting a high of 17.80%. Profit before tax excluding other income also grew by 33.12% to ₹41.00 crore, underscoring operational efficiency and profitability improvements.

Promoters continue to hold a majority stake, signalling stable ownership and potential alignment with shareholder interests.

Valuation and Performance Challenges

However, these positives have not translated into share price gains, largely due to valuation concerns and underwhelming returns. The stock trades at a price-to-book ratio of 6.1, which is considered expensive relative to its own historical valuations and peers. Although the company’s return on equity stands at a respectable 14.6%, the price-earnings-to-growth (PEG) ratio is an alarming 41.7, indicating that the stock price may be disconnected from earnings growth prospects.

Over the past year, Kennametal India’s share price has declined by 30.25%, while profits have only marginally increased by 0.2%. This disconnect suggests that investors are pricing in concerns about future growth or market positioning. Additionally, the stock has underperformed the BSE500 index over one year, three years, and the last three months, further highlighting its relative weakness in the broader market context.

Conclusion: Why the Stock is Falling

Kennametal India Ltd’s share price decline on 29-Dec and over recent periods can be attributed to a combination of factors. While the company’s operational performance and profitability metrics remain strong, the stock’s expensive valuation and poor relative returns have weighed heavily on investor sentiment. The significant underperformance against the Sensex and BSE500 indices, coupled with trading below key moving averages, signals a lack of confidence in near-term price appreciation.

Investors appear cautious due to the high PEG ratio and the disconnect between modest profit growth and steep share price declines. Until the market perceives a more compelling valuation or sustained earnings acceleration, the stock is likely to face continued pressure. For those considering exposure to the industrial manufacturing sector, evaluating alternative opportunities with more attractive valuations and consistent returns may be prudent.

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 →