Why is Natl.Fertilizer falling/rising?

Recent Price Performance and Market Comparison

National Fertilizer’s recent price action has been notably weak, underperforming its sector by 3.72% on the day. Over the past week, the stock has declined by 9.34%, significantly lagging the Sensex’s marginal 0.10% gain. The one-month and year-to-date returns further highlight this underperformance, with the stock down 11.22% and 28.16% respectively, while the Sensex has advanced by 0.45% and 8.25% over the same periods. Even over a one-year horizon, the stock has delivered a negative return of 25.49%, contrasting with the Sensex’s positive 5.59%.

Intraday trading on 25-Nov saw the stock touch a low of ₹83.10, down 3.81%, with heavier volumes concentrated near this lower price point, signalling selling pressure. The stock is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, indicating a sustained bearish trend. Additionally, investor participation appears to be waning, with delivery volumes on 24-Nov falling by 17.87% compared to the five-day average, suggesting reduced conviction among buyers.

Fundamental Weaknesses Driving the Decline

Underlying the stock’s poor market performance are significant fundamental challenges. National Fertilizer has experienced a steep decline in profitability, with profits falling by 70.9% over the past year. The company’s operating profits have contracted at a compounded annual growth rate (CAGR) of -23.32% over the last five years, signalling persistent operational difficulties. This erosion in earnings power is reflected in the company’s negative quarterly results for four consecutive quarters, with profit before tax excluding other income plunging by 897.66% to a loss of ₹51.18 crores, and net profit after tax declining by 396.7% to a loss of ₹35.81 crores.

Return metrics further underscore the company’s struggles. The average return on equity stands at a modest 5.85%, indicating low profitability relative to shareholders’ funds. Return on capital employed (ROCE) is also subdued, with the half-year figure at 4.41%, reflecting inefficient capital utilisation. The company’s ability to service debt is constrained, as evidenced by a high Debt to EBITDA ratio of 3.56 times, raising concerns about financial leverage and risk.

Despite its size, National Fertilizer has limited endorsement from domestic mutual funds, which hold a mere 0.35% stake. Given their capacity for thorough research, this small holding may suggest a lack of confidence in the company’s prospects or valuation at current levels.

Valuation and Long-Term Outlook

On valuation metrics, National Fertilizer trades at a discount relative to its peers’ historical averages, with an enterprise value to capital employed ratio of 1.2 and a return on capital employed of 3%. While this might appear attractive superficially, the discount is largely justified by the company’s weak earnings trajectory and deteriorating fundamentals. The stock’s long-term performance, although positive over five years with a 148.08% gain, has lagged the Sensex’s 93.00% gain in relative terms, and recent years have seen a marked reversal in fortunes.

Given the combination of declining profitability, poor returns on equity and capital, high leverage, and subdued investor interest, the stock’s recent price decline is a reflection of these underlying challenges. The sustained nine-day losing streak and underperformance relative to broader market indices and sector peers highlight investor caution and a lack of confidence in near-term recovery prospects.

Investors should weigh these factors carefully, considering the company’s weak financial health and operational setbacks before making investment decisions.

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