Why is Madhav Copper falling/rising?

Recent Price Movement and Market Context

The stock’s 5.79% gain on 12-Dec contrasts with its recent weekly and monthly returns, where it has shown modest positive performance. Over the past week, Madhav Copper’s shares appreciated by 6.07%, significantly outperforming the Sensex, which declined by 0.53% during the same period. However, the one-month return of 0.52% slightly trails the Sensex’s 0.66% gain. Despite these short-term gains, the stock has struggled over longer horizons, with a year-to-date loss of 17.78% against the Sensex’s 10.16% rise and a one-year return of -37.08% compared to the Sensex’s 6.10% increase.

These figures highlight a stock that has recently found some buying interest but remains weighed down by broader concerns about its financial health and profitability.

Positive Drivers Behind the Price Rise

One of the key factors supporting the recent price appreciation is the company’s consistent declaration of positive quarterly results over the last seven quarters. Notably, Madhav Copper reported net sales of ₹51.14 crores in the latest quarter, reflecting a robust growth rate of 98.76%. This strong sales growth signals operational momentum that may be encouraging investors despite other concerns.

Additionally, the stock’s current price is above its 5-day and 20-day moving averages, indicating short-term bullish momentum. The majority shareholding by promoters may also provide some confidence to the market regarding the company’s governance and strategic direction.

However, it is important to note that the stock underperformed its sector on the day by 1.27%, and investor participation appears to be waning, with delivery volumes on 11-Dec falling by 38.54% compared to the five-day average. This suggests that while the price is rising, the rally may not be supported by broad-based buying interest.

Fundamental Challenges Tempering Optimism

Despite the recent gains, Madhav Copper faces significant long-term fundamental challenges. The company’s operating profits have declined at a compound annual growth rate (CAGR) of -4.34% over the past five years, reflecting weakening profitability. Its ability to service debt is also concerning, with an average EBIT to interest ratio of just 0.43, indicating limited cushion to cover interest expenses.

The company’s return on equity (ROE) averages 5.98%, a relatively low figure that points to modest profitability per unit of shareholder funds. Furthermore, the return on capital employed (ROCE) stands at 6.4%, while the enterprise value to capital employed ratio is 2, suggesting the stock is expensive relative to the capital it employs.

Over the past year, Madhav Copper’s profits have fallen by 35.3%, which aligns with the stock’s 37.08% negative return during the same period. This underperformance is stark when compared to the broader market, where the BSE500 index has generated a positive return of 1.78% over the last year.

Investor Takeaway

The recent rise in Madhav Copper’s share price appears to be driven primarily by short-term sales growth and positive quarterly results, which have provided some optimism to investors. However, the stock’s longer-term fundamentals remain weak, with declining profitability, poor debt servicing capacity, and underperformance relative to market benchmarks.

Investor participation is currently subdued, and the stock trades below its longer-term moving averages, signalling caution. While the stock is trading at a discount compared to its peers’ historical valuations, the fundamental weaknesses and profit declines over the past year suggest that the recent price rise may not be sustainable without a meaningful improvement in financial performance.

For investors, it is crucial to weigh the short-term positive sales momentum against the company’s structural challenges before making investment decisions.

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 →