Why is Som Distilleries falling/rising?

Recent Price Performance and Market Comparison

Som Distilleries has underperformed significantly against the broader market benchmarks in recent periods. Over the past week, the stock declined by 6.28%, contrasting sharply with the Sensex’s marginal gain of 0.01%. The one-month performance further highlights this divergence, with the stock falling 16.31% while the Sensex rose 2.70%. Year-to-date, the stock is down 0.86%, whereas the Sensex has appreciated by 9.69%. Even over a one-year horizon, Som Distilleries has barely moved, registering a modest 0.28% gain compared to the Sensex’s 4.83% rise. Despite this, the company’s longer-term track record remains impressive, with a three-year return of 86.15% and a five-year return exceeding 800%, far outpacing the Sensex’s respective gains of 36.41% and 90.14%.

Technical Indicators and Trading Activity

On the day of the decline, the stock touched an intraday low of ₹108.30, marking a 2.96% drop from previous levels. It is currently trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling a bearish trend in the short to medium term. Additionally, investor participation appears to be waning, with delivery volumes on 04 Dec falling by 18.04% compared to the five-day average. This reduced trading activity may indicate hesitation among investors, contributing to the downward pressure on the stock price. Despite this, liquidity remains adequate, allowing for trade sizes of approximately ₹0.1 crore without significant market impact.

Fundamental Strengths Supporting Long-Term Growth

Despite the recent price weakness, Som Distilleries exhibits robust long-term fundamentals. The company has achieved a healthy compound annual growth rate in net sales of 37.49%, alongside an impressive operating profit growth of 60.19%. Its return on capital employed (ROCE) stands at a respectable 15.6%, indicating efficient utilisation of capital. Valuation metrics also suggest the stock is attractively priced, trading at an enterprise value to capital employed ratio of 2.3, which is below the average historical valuations of its peers. Over the past year, profits have increased by 7.7%, even as the stock’s price appreciation remained subdued. The company’s price-to-earnings-to-growth (PEG) ratio of 3 reflects moderate expectations for future earnings growth relative to its current valuation.

Promoter Confidence and Stakeholding Trends

Investor confidence is further bolstered by the promoters’ recent actions. They have increased their stake by 0.62% in the previous quarter, now holding 39.37% of the company’s equity. Such a move typically signals strong promoter belief in the company’s prospects and can be a positive indicator for long-term investors.

Challenges and Risks Weighing on the Stock

However, certain financial metrics raise caution. Interest expenses have surged sharply, growing by 85.15% over the latest six months to ₹9.85 crore, which could pressure profitability going forward. The company’s half-year ROCE is at its lowest level of 15.79%, suggesting some erosion in capital efficiency. Moreover, the operating profit to interest coverage ratio for the quarter stands at a relatively low 8.17 times, indicating tighter margins to service debt. These factors may be contributing to investor concerns and the recent decline in share price.

Conclusion: A Stock Under Pressure but Backed by Solid Fundamentals

In summary, Som Distilleries & Breweries Ltd is experiencing a short-term correction amid broader market underperformance and some financial headwinds, particularly rising interest costs and reduced capital efficiency. While the stock’s recent price action has been weak, its long-term growth trajectory, attractive valuation, and rising promoter confidence provide a foundation for potential recovery. Investors should weigh these mixed signals carefully, considering both the risks and opportunities inherent in the company’s current position.

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