Why is Mukand Ltd falling/rising?

Recent Price Movement and Market Performance

Mukand Ltd has underperformed both its sector and the broader market in recent trading sessions. Over the last week, the stock has declined by 6.75%, significantly more than the Sensex’s 2.55% drop. Year-to-date, the stock is down 5.07%, compared to the Sensex’s 1.93% fall. This underperformance is further highlighted by the stock’s three consecutive days of losses, amounting to a 7.15% decline in that period. On 09-Jan, the stock touched an intraday low of ₹127.40, down 3.48% from the previous close, signalling persistent selling pressure.

Despite the recent weakness, Mukand’s current price remains above its 200-day moving average, suggesting some underlying long-term support. However, it is trading below its 5-day, 20-day, 50-day, and 100-day moving averages, indicating short- to medium-term bearish momentum. Notably, investor participation has increased, with delivery volumes on 08-Jan rising by 24.11% compared to the five-day average, reflecting heightened trading activity amid the price decline.

Valuation and Profitability Concerns

Mukand Ltd’s valuation appears attractive on certain metrics. The company boasts a Return on Capital Employed (ROCE) of 7.3%, and an enterprise value to capital employed ratio of 1.3, indicating it is trading at a discount relative to its peers’ historical valuations. Over the past year, the stock has delivered a modest 2.74% return, outperforming some peers in absolute terms.

However, this positive valuation is overshadowed by a significant decline in profitability. The company’s profits have fallen by 34% over the last year, signalling operational challenges. This erosion in earnings power is a key factor weighing on investor confidence and contributing to the stock’s recent weakness.

Weak Fundamentals and Debt Burden

Long-term fundamental indicators raise further concerns. Mukand’s average ROCE over time is a modest 5.20%, reflecting limited efficiency in generating returns from capital. Although net sales have grown at an annual rate of 14.03% over the past five years, this growth has not translated into robust profitability. The company’s ability to service debt is also questionable, with a high Debt to EBITDA ratio of 6.37 times, indicating significant leverage and potential financial strain.

The company has reported negative results for three consecutive quarters, with the latest quarterly profit after tax (PAT) at ₹9.88 crore, down 50.7% compared to the previous four-quarter average. Additionally, the half-year ROCE has dropped to a low of 8.94%, and the inventory turnover ratio has declined to 2.14 times, signalling inefficiencies in managing working capital.

Investor sentiment is further dampened by the absence of domestic mutual fund holdings in Mukand Ltd. Despite the company’s size, mutual funds hold no stake, which may reflect their reservations about the company’s business prospects or valuation at current levels. Given that mutual funds typically conduct thorough research, their lack of participation is a notable negative signal for the stock.

Conclusion: Why Mukand Ltd Is Falling

The recent decline in Mukand Ltd’s share price is primarily driven by weak quarterly earnings, deteriorating profitability, and concerns over the company’s financial health. Despite an attractive valuation relative to peers, the significant drop in profits and high leverage have undermined investor confidence. The stock’s underperformance against the Sensex and sector benchmarks, combined with increased selling pressure and absence of institutional support, further exacerbates the negative sentiment.

While the company’s long-term sales growth remains positive, the inability to convert this into sustainable profits and efficient capital utilisation has led to a cautious outlook. Investors appear to be reacting to these fundamental weaknesses, resulting in the stock’s recent downward trajectory. Until there is a clear improvement in earnings and balance sheet metrics, Mukand Ltd’s shares are likely to remain under pressure.

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