Why is National Fertilizer Ltd falling/rising?

Recent Price Performance and Market Comparison

National Fertilizer Ltd has underperformed both its sector and broader market indices over multiple time frames. In the past week, the stock declined by 0.48%, slightly better than the Sensex’s 1.14% fall, but over the last month, it dropped 6.01%, significantly worse than the Sensex’s 1.20% decline. Year-to-date, the stock has fallen sharply by 14.75%, far exceeding the Sensex’s modest 3.04% loss. Over the last year, the stock’s return was negative 13.19%, contrasting starkly with the Sensex’s positive 8.52% gain. Although the stock has delivered a respectable 40.52% return over three years and nearly 92% over five years, these gains have not shielded it from recent weakness.

Technical Indicators and Trading Activity

On 13-Feb, National Fertilizer Ltd’s shares touched an intraday low of ₹77.90, down 2.05%. The stock has been in a four-day losing streak, shedding nearly 3.89% during this period. It 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. Furthermore, investor participation has waned, with delivery volumes on 12-Feb falling by over 32% compared to the five-day average, indicating reduced buying interest. Despite this, liquidity remains adequate for moderate trade sizes, suggesting that the stock remains accessible to active traders.

Fundamental Weaknesses Driving the Decline

The stock’s decline is underpinned by a series of disappointing fundamental indicators. National Fertilizer Ltd’s return on capital employed (ROCE) stands at a modest 3%, reflecting limited efficiency in generating profits from its capital base. While the stock trades at a discount relative to its peers’ historical valuations, this valuation advantage is overshadowed by a sharp 70.9% fall in profits over the past year. Operating profits have contracted at a compound annual growth rate (CAGR) of -23.32% over the last five years, signalling persistent operational challenges.

Debt servicing capacity is another concern, with a high Debt to EBITDA ratio of 3.56 times, indicating elevated leverage and potential strain on cash flows. The company’s average return on equity (ROE) is a low 5.85%, suggesting limited profitability for shareholders. These weak financial metrics have contributed to the stock’s poor performance relative to benchmarks such as the BSE500 index, where it has underperformed over one year, three years, and the recent three-month period.

Recent Earnings and Investor Sentiment

National Fertilizer Ltd has reported negative results for four consecutive quarters, with pre-tax losses excluding other income reaching ₹-51.18 crores, a staggering decline of 897.66%. Net profit after tax (PAT) also plunged by 396.7% to ₹-35.81 crores. The half-year ROCE has dropped to a low of 4.41%, further highlighting operational inefficiencies. Despite the company’s size, domestic mutual funds hold a mere 0.45% stake, which may reflect their cautious stance given the company’s weak earnings and uncertain outlook.

Conclusion: Why the Stock Is Falling

The sustained decline in National Fertilizer Ltd’s share price is primarily driven by its deteriorating financial health and poor earnings performance. The company’s inability to generate consistent profits, coupled with high leverage and low returns on equity and capital employed, has eroded investor confidence. The stock’s underperformance relative to major indices and sector peers further compounds concerns. Reduced investor participation and a persistent downtrend below key moving averages reinforce the bearish sentiment. Until the company demonstrates a turnaround in profitability and operational metrics, the stock is likely to remain under pressure.

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