Why is Lux Industries Ltd falling/rising?

Recent Price Performance and Market Comparison

Lux Industries has been on a downward trajectory over the past week, losing 8.51% compared to the Sensex's modest decline of 0.75%. The trend worsens over longer periods, with the stock falling 17.73% in the last month and 17.53% year-to-date, while the Sensex has only declined by 1.98% and 2.32% respectively. Over the past year, the stock has plummeted by 47.15%, starkly contrasting with the Sensex's 8.65% gain. This underperformance extends to a three-year horizon, where Lux Industries has lost 39.42% against the Sensex's robust 36.79% rise, and over five years, the stock has declined 42.60% while the benchmark surged 68.52%.

On 19-Jan, the stock touched an intraday low of ₹917.9, marking a fresh 52-week low. It has now declined for seven consecutive trading sessions, shedding 13.25% in that period. The stock is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling sustained bearish momentum. Additionally, investor participation appears to be waning, with delivery volumes on 16 Jan falling by 9.67% compared to the five-day average, indicating reduced buying interest.

Financial Health and Profitability Concerns

Despite maintaining a low average debt-to-equity ratio of 0.10 times, which is generally favourable, Lux Industries is grappling with deteriorating profitability. The company’s return on capital employed (ROCE) stands at 8.3%, and it trades at a relatively attractive valuation with an enterprise value to capital employed ratio of 1.5. However, these positives are overshadowed by a 21% decline in profits over the past year, signalling operational challenges.

More troubling is the company’s poor long-term growth trajectory. Operating profit has contracted at an annualised rate of 6.72% over the last five years, reflecting sustained pressure on core earnings. The firm has reported negative results for two consecutive quarters, with interest expenses rising sharply by 56.50% to ₹23.10 crores over nine months, while profit before tax excluding other income has plunged 51.19% to ₹26.23 crores in the latest quarter. Operating cash flow for the year has also deteriorated significantly, registering a negative ₹80.52 crores, which raises concerns about liquidity and operational efficiency.

Investor Sentiment and Market Position

Investor confidence appears subdued, as evidenced by the minimal stake held by domestic mutual funds, which own only 0.35% of the company. Given their capacity for thorough due diligence, this limited exposure may indicate scepticism about the company’s prospects or valuation. The stock’s consistent underperformance relative to the BSE500 index over one year, three years, and three months further underscores its struggles to keep pace with broader market gains.

Conclusion: Why the Stock Is Falling

In summary, Lux Industries Ltd’s share price decline is driven by a combination of weak financial performance, deteriorating profitability, and poor investor sentiment. The stock’s sustained losses over multiple time frames, coupled with negative quarterly results and rising interest costs, have eroded confidence. Trading below all major moving averages and hitting new lows, the stock reflects the market’s cautious stance amid ongoing operational challenges. While valuation metrics suggest some discount relative to peers, the lack of growth and cash flow concerns weigh heavily on the stock’s outlook.

Investors should carefully weigh these factors before considering exposure to Lux Industries, especially given the availability of potentially stronger alternatives in the market.

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 →