Why is Mohit Industries Ltd falling/rising?

Recent Price Movement and Market Comparison

Mohit Industries Ltd closed at ₹27.25, down ₹1.25 or 4.39% on 12 January, underperforming both its sector and broader market indices. Over the past week and month, the stock has declined by over 6%, significantly worse than the Sensex’s modest losses of under 2% in the same periods. Year-to-date, the stock is down 2.43%, slightly worse than the Sensex’s 1.58% decline. Most notably, over the last year, Mohit Industries has delivered a negative return of 20.92%, while the Sensex gained 8.40%, highlighting a substantial underperformance relative to the benchmark.

Despite this, the stock has shown strong longer-term gains, with a 3-year return of 64.65% and an impressive 5-year return exceeding 350%, far outpacing the Sensex’s respective 39.89% and 69.39% gains. This suggests that while the company has delivered exceptional growth in the past, recent performance has faltered considerably.

Technical and Trading Indicators Signal Weakness

On the technical front, Mohit Industries is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, indicating a bearish trend. Investor participation has also waned, with delivery volumes on 9 January falling nearly 69% compared to the five-day average, signalling reduced buying interest. The stock’s liquidity remains adequate for trading, but erratic trading patterns have emerged, with the stock not trading on one of the last 20 days, further reflecting investor caution.

Operational Highlights and Valuation

On the positive side, the company reported net sales of ₹66.78 crores in the latest six months, marking a robust growth of 42.42%. The debtors turnover ratio reached a high of 11.07 times, indicating efficient receivables management. Quarterly PBDIT also hit a peak of ₹1.25 crores. Furthermore, the company’s return on capital employed (ROCE) stands at 0.1, and it trades at an enterprise value to capital employed ratio of 0.4, suggesting an attractive valuation relative to peers. Despite the stock’s negative return over the past year, profits have increased by 9.3%, reflecting some operational improvement.

Fundamental Weaknesses and Debt Concerns

However, these positives are overshadowed by significant fundamental weaknesses. The company’s operating profits have declined at a compound annual growth rate (CAGR) of -15.53% over the last five years, signalling deteriorating core profitability. Its ability to service debt is poor, with an average EBIT to interest coverage ratio of just 0.29, raising concerns about financial stability. Return on equity (ROE) is also low at 1.31%, indicating limited profitability generated from shareholders’ funds.

These factors contribute to the stock’s underperformance relative to the broader market. While the BSE500 index has delivered a 7.51% return over the past year, Mohit Industries has lagged significantly, generating negative returns of nearly 21%. This divergence highlights investor scepticism about the company’s long-term growth prospects and financial health.

Conclusion: Why the Stock is Falling

The decline in Mohit Industries Ltd’s share price as of 12 January is primarily driven by its weak long-term fundamentals, including shrinking operating profits and poor debt servicing capacity. Despite some encouraging sales growth and profit improvement in recent quarters, the company’s low return on equity and persistent underperformance relative to market benchmarks have eroded investor confidence. Technical indicators and reduced trading volumes further reinforce the bearish sentiment surrounding the stock. Until the company demonstrates sustained improvement in profitability and financial health, the stock is likely to face continued downward pressure.

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 →