Why is Sh. Ajit Pulp falling/rising?

Nov 22 2025 12:21 AM IST

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On 21-Nov, Shree Ajit Pulp and Paper Ltd witnessed a notable decline in its share price, falling by 4.41% to close at ₹250.65. This drop comes after a sustained period of underperformance relative to the broader market and sector benchmarks, reflecting a complex interplay of positive operational results tempered by concerns over debt servicing and recent investor sentiment.

Recent Price Movement and Market Context

On 21-Nov, the stock underperformed its sector by 4.11%, marking a significant deviation from the broader market trend. Over the past week, Shree Ajit Pulp’s shares have declined by 8.14%, contrasting sharply with the Sensex’s modest gain of 0.79% during the same period. This recent weakness is further underscored by the stock’s intraday low of ₹250.65, which coincided with heavier trading volumes near this lower price point, indicating increased selling interest.

Technical indicators reveal a mixed picture. The stock remains above its 50-day, 100-day, and 200-day moving averages, signalling a generally positive medium to long-term trend. However, it is trading below its 5-day and 20-day moving averages, suggesting short-term bearish momentum. This technical setup aligns with the observed four consecutive days of price declines, during which the stock lost nearly 8.85% of its value.

Investor participation has also waned, with delivery volumes on 20 Nov plunging by 93.53% compared to the five-day average. This sharp drop in investor engagement may be contributing to the stock’s recent volatility and price softness.

Strong Fundamentals Contrast with Short-Term Weakness

Despite the recent price decline, Shree Ajit Pulp and Paper Ltd has demonstrated robust financial performance. The company reported a 22.26% growth in net sales in its September 2025 quarter, marking its third consecutive quarter of positive results. Profit before tax excluding other income surged by 73.1% to ₹8.49 crores compared to the previous four-quarter average, highlighting operational strength.

Return on Capital Employed (ROCE) stands at an impressive 10.62% for the half-year, while the inventory turnover ratio is high at 8.09 times, indicating efficient management of working capital. The company’s valuation metrics also appear attractive, with an enterprise value to capital employed ratio of 0.9, suggesting the stock is trading at a discount relative to its peers’ historical averages.

Over the past year, the stock has delivered an 18.23% return, outperforming the Sensex’s 10.47% gain. Profit growth has been particularly strong, rising by 134.5%, and the company’s PEG ratio of 0.1 points to undervaluation relative to earnings growth. Promoters remain the majority shareholders, providing stability in ownership.

Risks Tempering Investor Sentiment

However, certain risks may be weighing on investor sentiment and contributing to the recent price decline. The company’s debt servicing capacity is a concern, with a high Debt to EBITDA ratio of 4.70 times, indicating significant leverage. This elevated debt burden could constrain financial flexibility and increase vulnerability to interest rate fluctuations or economic downturns.

Additionally, the average Return on Equity (ROE) of 8.99% suggests relatively modest profitability per unit of shareholder funds. Long-term growth prospects also appear subdued, with operating profit growing at an annual rate of 19.53% over the past five years, which may be viewed as insufficiently aggressive by growth-oriented investors.

These factors, combined with the recent decline in trading volumes and short-term technical weakness, have likely contributed to the stock’s underperformance in the immediate term despite its solid fundamental backdrop.

Long-Term Performance and Outlook

Looking beyond the short-term volatility, Shree Ajit Pulp and Paper Ltd has delivered a five-year return of 130.30%, comfortably outpacing the Sensex’s 94.23% gain over the same period. This long-term outperformance reflects the company’s ability to generate value for shareholders despite cyclical pressures in the pulp and paper sector.

While the recent price correction may present a buying opportunity for investors focused on fundamentals, caution is warranted given the company’s leverage and the current dip in investor participation. Monitoring upcoming quarterly results and debt management strategies will be crucial for assessing the stock’s trajectory going forward.

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