Why is Nilkamal Ltd falling/rising?

Recent Price Movement and Market Context

Nilkamal Ltd closed at ₹1,407.00, down by ₹2.65 or 0.19% as of 08:43 PM on 27-Nov. The stock has been on a losing streak for seven consecutive days, shedding approximately 5.29% during this period. This decline is notable given that the stock is trading just 0.91% above its 52-week low of ₹1,394.15, signalling proximity to its lowest valuation in a year. Furthermore, Nilkamal is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, indicating sustained bearish momentum.

Comparatively, the broader market benchmark, the Sensex, has shown resilience with positive returns of 0.10% over the past week and 1.11% over the last month, while Nilkamal has underperformed significantly with losses of 4.48% and 7.25% respectively. The divergence is even starker over longer horizons; the stock has declined by 25.83% in the past year and 26.93% over three years, whereas the Sensex has gained 6.84% and 37.61% in the same periods. This underperformance highlights the stock’s struggle to keep pace with the broader market and its sector peers.

Financial Performance and Valuation Insights

Despite the negative price action, Nilkamal Ltd exhibits some positive financial attributes. The company maintains a strong ability to service its debt, with a relatively low Debt to EBITDA ratio of 1.29 times, suggesting manageable leverage levels. Its Return on Capital Employed (ROCE) stands at 8.2%, which, while modest, indicates some efficiency in capital utilisation. Additionally, the stock trades at an attractive valuation, with an Enterprise Value to Capital Employed ratio of 1.3, implying it is priced at a discount relative to its peers’ historical averages.

However, these positives are overshadowed by the company’s declining profitability and sluggish growth. Over the past year, Nilkamal’s profits have contracted by 9.7%, a trend that has weighed heavily on investor sentiment. The company’s net sales have grown at a compounded annual rate of 13.27% over the last five years, but operating profit growth has been limited to 6.60% annually, reflecting margin pressures and operational challenges.

Operational Challenges and Market Sentiment

Nilkamal’s recent quarterly results have been largely flat, with key efficiency ratios signalling potential concerns. The Debtors Turnover Ratio for the half-year period is notably low at 0.67 times, indicating slower collection cycles and potential working capital inefficiencies. Meanwhile, the Debt-Equity Ratio has risen to 1.32 times, the highest in recent periods, suggesting increased reliance on debt financing which may raise financial risk perceptions among investors.

The stock’s liquidity remains adequate, with delivery volumes on 26 Nov rising by 92.17% compared to the five-day average, reflecting heightened investor participation. Nevertheless, this increased activity has not translated into price gains, as selling pressure persists. The stock’s underperformance relative to the BSE500 index over the last three years, one year, and three months further underscores its challenges in delivering shareholder value.

Conclusion: Why Nilkamal Ltd Is Falling

Nilkamal Ltd’s share price decline is primarily driven by its sustained underperformance against market benchmarks and peers, coupled with disappointing profit trends and operational inefficiencies. While the company’s debt servicing capability and valuation metrics offer some respite, these factors have not been sufficient to offset concerns over flat recent results, rising leverage, and weak long-term growth prospects. The stock’s proximity to its 52-week low and its position below all major moving averages reflect prevailing bearish sentiment among investors.

In summary, Nilkamal Ltd’s falling stock price is a reflection of both fundamental challenges and market dynamics, with investors seemingly cautious about the company’s ability to reverse its downward trajectory in the near term.

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 →