Recent Price Performance and Market Context
National Fertilizer Ltd has underperformed both its sector and the broader market over multiple time frames. In the past week, the stock declined by 4.72%, significantly worse than the Sensex’s 1.73% fall. The one-month and year-to-date returns are also deeply negative at -7.82% and -13.57% respectively, compared to the Sensex’s more modest declines. Over the last year, the stock has lost nearly 28%, while the Sensex gained 6.63%, highlighting a stark divergence from market trends.
Today’s trading session saw the stock underperform the fertiliser sector by 1.69%, with the sector itself down 2.08%. The share price touched an intraday low of ₹78.5, down 4.26%, and has now declined for three consecutive days, losing over 5% in that period. Notably, 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.
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Fundamental Weaknesses Weighing on the Stock
The primary driver behind National Fertilizer Ltd’s share price decline is its deteriorating financial health. The company has reported negative results for four consecutive quarters, with profit before tax excluding other income plunging to a loss of ₹51.18 crores, a staggering fall of nearly 898%. Net profit after tax also declined sharply by 396.7%, registering a loss of ₹35.81 crores in the latest quarter. These figures underscore the company’s inability to generate sustainable profits in the current environment.
Long-term operating profit growth has been negative, with a compound annual growth rate of -23.32% over the past five years. This weak operational performance is compounded by a high debt burden, as evidenced by a Debt to EBITDA ratio of 3.56 times, indicating limited capacity to service debt obligations. Return on equity remains low at an average of 5.85%, reflecting poor profitability relative to shareholders’ funds.
Despite its size, National Fertilizer Ltd has limited institutional backing, with domestic mutual funds holding a mere 0.45% stake. This low participation from informed investors may signal a lack of confidence in the company’s business model or valuation at current levels.
Valuation and Relative Performance
While the stock trades at a discount relative to its peers’ historical valuations, with an enterprise value to capital employed ratio of 1.2 and a return on capital employed of 3%, these metrics have not been sufficient to attract buying interest. The company’s profits have fallen by 70.9% over the past year, which has overshadowed any valuation appeal. Furthermore, the stock’s five-year total return of 90.87% lags behind the Sensex’s 65.05% gain, but recent underperformance relative to the benchmark and sector has eroded investor confidence.
Investor participation has also waned, with delivery volumes on 19 Jan falling by over 36% compared to the five-day average, indicating reduced enthusiasm among shareholders and traders alike. Liquidity remains adequate for moderate trade sizes, but the lack of buying interest has contributed to the persistent downward pressure on the share price.
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Conclusion: Why the Stock Is Falling
National Fertilizer Ltd’s share price decline on 20-Jan is a reflection of its ongoing financial struggles and poor operational performance. The company’s inability to generate profits, coupled with high debt levels and weak returns on equity, has led to sustained investor scepticism. The stock’s consistent underperformance relative to the Sensex and its sector, along with falling investor participation, further exacerbates the negative sentiment.
Although the stock is trading at a discount to peers, this valuation advantage has not translated into buying interest due to the company’s deteriorating fundamentals and disappointing quarterly results. Until National Fertilizer Ltd can demonstrate a turnaround in profitability and improve its financial health, the downward pressure on its share price is likely to persist.
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