Why is Shankara Build. falling/rising?

Recent Price Movement and Market Context

Shankara Building Products has been on a downward trajectory over the past week, with the stock falling 3.59% while the Sensex marginally rose by 0.20%. Over the last month, the stock’s decline has been even more pronounced at 17.51%, significantly underperforming the benchmark index, which dipped only 0.46% in the same period. Year-to-date, the stock has plummeted 33.77%, contrasting sharply with the Sensex’s 8.22% gain. This trend extends over longer horizons as well, with the stock delivering a negative 35.51% return over the past year, while the Sensex appreciated by 4.80%. Over three and five years, the stock has lagged considerably behind the benchmark, underscoring sustained underperformance.

On 17-Dec, the stock hit a new 52-week low of Rs 108.1, marking a fresh nadir in its valuation. The share price has been declining for three consecutive days, losing 4.06% in that span. Intraday, the stock touched a low of Rs 108.1, down 2.57% from the previous close. Notably, Shankara Building Products is trading below all key moving averages – 5-day, 20-day, 50-day, 100-day, and 200-day – signalling a bearish technical outlook. Investor participation has also waned, with delivery volumes on 16-Dec falling by 63.4% compared to the five-day average, indicating reduced buying interest.

Financial Performance and Valuation Metrics

Despite the negative price action, Shankara Building Products exhibits some positive financial attributes. The company maintains a strong ability to service its debt, with a low Debt to EBITDA ratio of 0.79 times, which suggests manageable leverage. Its return on capital employed (ROCE) stands at a healthy 17.1%, and the enterprise value to capital employed ratio is an attractive 0.6, indicating the stock is trading at a discount relative to its peers’ historical valuations.

However, these positives are overshadowed by the company’s deteriorating profitability. Over the past year, profits have declined by 33.8%, closely mirroring the stock’s negative return of 35.51%. The company’s PEG ratio is zero, reflecting a lack of earnings growth relative to its price. Institutional investors hold a significant 22.45% stake in the company, and their holdings have increased by 1.83% over the previous quarter, signalling some confidence in the company’s fundamentals despite the weak price performance.

Operational Challenges and Earnings Decline

Shankara Building Products’ recent quarterly results have been particularly disappointing. The company reported a sharp 17.01% decline in net sales, with quarterly net sales falling to Rs 279.91 crore, the lowest level recorded. Operating profit (PBDIT) also turned negative at Rs -0.58 crore, while the quarterly profit after tax (PAT) plunged to a loss of Rs -5.16 crore, representing a staggering 700% decline. These figures underscore the severe operational challenges the company is facing.

Long-term growth prospects appear muted as well. Over the past five years, net sales have grown at an annual rate of just 10.82%, and operating profit has increased by 14.50% annually, figures that are modest in the context of the broader market. The company’s consistent underperformance against the benchmark indices over the last three years further dampens investor sentiment. It has underperformed the BSE500 index in each of the last three annual periods, reinforcing concerns about its growth trajectory and competitive positioning.

Conclusion: Reasons Behind the Share Price Decline

The decline in Shankara Building Products’ share price on 17-Dec and over recent periods can be attributed primarily to its weak financial performance and persistent underperformance relative to market benchmarks. The company’s latest quarterly results revealed significant declines in sales and profitability, which have eroded investor confidence. Despite a solid balance sheet and attractive valuation metrics, the lack of robust earnings growth and disappointing operational results have weighed heavily on the stock.

Technical indicators also point to bearish momentum, with the stock trading below all major moving averages and hitting new 52-week lows. Reduced investor participation further compounds the negative sentiment. While institutional investors maintain a meaningful stake, the broader market appears cautious given the company’s poor long-term growth record and consistent underperformance against the benchmark indices.

In summary, the combination of deteriorating earnings, subdued sales growth, and technical weakness explains why Shankara Building Products’ share price has been falling, reflecting the challenges the company currently faces in regaining investor favour.

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 →