Why is Shriram Properti falling/rising?

Recent Price Movement and Market Context

Shriram Properties has experienced a notable downturn over the past week, with its stock falling by 3.65%, significantly underperforming the Sensex which remained nearly flat with a marginal decline of 0.06%. Over the last month, the stock has marginally declined by 0.60%, while the benchmark index gained 0.82%. Year-to-date, the stock is down 17.90%, contrasting sharply with the Sensex’s robust 8.65% gain. This underperformance extends to the one-year horizon as well, where Shriram Properties has delivered a negative return of 11.30%, while the Sensex appreciated by 7.31%.

Despite the recent price fall, the stock has outperformed its sector by 0.67% today, indicating some relative resilience. However, it has been on a consecutive two-day decline, losing 3.55% in that period. The share price currently sits above its 200-day moving average, a long-term positive indicator, but remains below its short and medium-term moving averages (5, 20, 50, and 100 days), signalling near-term weakness and potential selling pressure.

Investor participation has also waned recently, with delivery volumes on 21 Nov falling by 11.7% compared to the five-day average. This decline in trading activity suggests reduced enthusiasm among market participants, which can exacerbate price declines in a stock already under pressure.

Operational Performance and Valuation Metrics

On the positive side, Shriram Properties has reported encouraging operational results over the last three quarters. Net sales for the latest six months stood at ₹447.63 crores, reflecting a robust growth rate of 51.99%. Profit after tax (PAT) surged by 77.26% to ₹29.16 crores in the same period, signalling improving profitability. These figures highlight the company’s ability to expand its top line and enhance earnings despite broader market challenges.

The company’s return on capital employed (ROCE) is modest at 2.3%, yet it benefits from an attractive valuation with an enterprise value to capital employed ratio of 1.1. This suggests that the stock is trading at a discount relative to its peers’ historical valuations. Furthermore, the price-to-earnings-growth (PEG) ratio stands at a low 0.3, indicating that the stock’s price does not fully reflect its earnings growth potential.

Institutional investors have shown increased confidence, raising their stake by 0.79% over the previous quarter to hold a collective 4.84% of the company. This growing institutional participation often reflects a more favourable assessment of the company’s fundamentals compared to retail investors.

Structural Challenges and Risks

Despite these positives, Shriram Properties faces significant long-term headwinds. The company continues to report operating losses, which undermines its fundamental strength. A critical concern is its high debt burden, with a debt-to-EBITDA ratio of 11.22 times, indicating a weak capacity to service debt. This elevated leverage poses financial risks and may constrain future growth or profitability.

Moreover, the stock’s historical performance has been disappointing. It has underperformed the BSE500 index over the last three years, one year, and three months, reflecting persistent challenges in delivering shareholder returns. The negative returns over the past year (-11.30%) contrast sharply with the broader market’s positive trajectory, further dampening investor enthusiasm.

Conclusion: Balancing Growth with Financial Risks

In summary, the recent decline in Shriram Properties’ share price as of 24-Nov reflects a market grappling with mixed signals. While the company demonstrates strong sales and profit growth alongside attractive valuation metrics and increasing institutional interest, these positives are offset by ongoing operating losses, high leverage, and a track record of underperformance relative to benchmarks.

Investors appear cautious, as evidenced by falling trading volumes and the stock’s failure to sustain momentum above key moving averages. The combination of improving fundamentals and structural financial weaknesses creates a complex investment case, with the current price decline signalling market concerns about the company’s ability to convert growth into sustainable profitability and shareholder value.

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 →