Why is SEL Manufacturing Company Ltd falling/rising?

Recent Price Movement and Volatility

The stock has been on a downward trajectory for the past four consecutive days, accumulating a loss of 13.14% over this period. Despite opening the day with a 2% gain and touching an intraday high of ₹36.18, SEL Manufacturing ultimately succumbed to selling pressure, hitting a low of ₹33.70 by the close. The intraday volatility was significant at 8.49%, indicating heightened uncertainty among traders. Notably, the stock’s price currently sits above its 20-day, 100-day, and 200-day moving averages but remains below the 5-day and 50-day averages, suggesting short-term weakness amid longer-term support levels.

Underperformance Against Benchmarks

SEL Manufacturing’s recent performance starkly contrasts with broader market indices. Over the past week, the stock declined by 13.14%, while the Sensex fell only 1.02%. Year-to-date, the stock has lost 25.33%, whereas the Sensex gained 8.39%. This persistent underperformance extends over longer horizons as well, with the stock delivering a negative 24.27% return over the last year compared to the Sensex’s positive 7.62%. Over three years, the disparity is even more pronounced, with SEL Manufacturing plunging 94.58% while the Sensex rose 38.54%. Such consistent lagging highlights the company’s struggles to keep pace with market growth and investor expectations.

Fundamental Challenges Weighing on the Stock

At the core of SEL Manufacturing’s share price decline lies its weak fundamental profile. The company reports a negative book value, signalling erosion of shareholder equity and raising concerns about its long-term viability. Over the past five years, net sales have contracted at an annualised rate of 38.08%, reflecting a severe downturn in business operations. This decline is further underscored by the company’s negative results for six consecutive quarters, with net sales for the first nine months of the current fiscal year falling by 74.03% to ₹13.90 crores. Correspondingly, the company’s profit after tax (PAT) plunged to a loss of ₹130.49 crores over the same period, also down 74.03% year-on-year.

The company’s financial health is further compromised by a high debt burden, with an average debt-to-equity ratio of 3.05 times. Such leverage amplifies risk, especially in a challenging operating environment. Additionally, the inventory turnover ratio stands at a low 2.24 times, indicating sluggish inventory movement and potential inefficiencies in working capital management. The firm’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) remain negative, signalling ongoing operational losses and casting doubt on near-term profitability prospects.

Market Sentiment and Investor Participation

Investor sentiment towards SEL Manufacturing appears subdued, as evidenced by a sharp decline in delivery volumes. On 26 December, delivery volume dropped by 93% compared to the five-day average, suggesting waning investor interest and participation. This reduced liquidity can exacerbate price volatility and magnify downward price movements. Furthermore, 36% of promoter shares are pledged, a factor that often adds selling pressure during market downturns as lenders may enforce margin calls or liquidate holdings to cover debts.

Long-Term Underperformance and Risk Profile

SEL Manufacturing’s stock has consistently underperformed not only the Sensex but also the broader BSE500 index over the last three years. This persistent lag is a reflection of the company’s deteriorating financial metrics and operational challenges. While the stock has delivered an extraordinary 1,431.82% return over five years, this figure is likely skewed by earlier periods of strong performance and does not mitigate the recent steep declines and fundamental weaknesses. The negative EBITDA and shrinking profits over the past year further highlight the risky nature of the stock, making it less attractive to risk-averse investors.

In summary, the decline in SEL Manufacturing Company Ltd’s share price on 29 December is primarily attributable to its weak financial fundamentals, including negative book value, declining sales and profits, high leverage, and operational inefficiencies. These factors, combined with falling investor participation and significant promoter share pledging, have exerted downward pressure on the stock. The company’s consistent underperformance relative to market benchmarks further dampens investor confidence, resulting in the recent price fall despite intermittent intraday gains.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →