Recent Price Movement and Market Comparison
On 18 December, Supreme Engineering Ltd’s shares closed at ₹1.24, down ₹0.06 or 4.62% from the previous session. This decline is notable as it significantly underperformed the broader sector by 4.32% on the day. Over the past week, the stock has fallen by the same margin of 4.62%, while the Sensex benchmark index has only dipped marginally by 0.32%. Despite a strong one-month gain of 33.33%, the stock’s longer-term performance paints a far less optimistic picture.
Long-Term Underperformance and Weak Fundamentals
Supreme Engineering’s year-to-date return stands at a steep negative 53.73%, in stark contrast to the Sensex’s positive 9.18% gain. Over the last one year, the stock has plunged 58.11%, while the Sensex has risen by 6.68%. Even over a five-year horizon, the stock has lost nearly half its value, declining 49.49%, whereas the Sensex has more than doubled with an 87.61% increase. This persistent underperformance signals deep-rooted issues within the company’s operations and financial health.
Financial Weaknesses and Operational Challenges
One of the primary reasons for the stock’s decline is the company’s weak long-term fundamentals. Supreme Engineering has not declared financial results for over six months, raising concerns about transparency and operational stability. The company’s net sales have contracted at an alarming annual rate of 40.02% over the past five years, while operating profit has deteriorated even more sharply, declining by 366.31% annually. This severe erosion of core business metrics undermines investor confidence.
The firm’s financial leverage is also a significant concern, with an average debt-to-equity ratio of 2.27 times, indicating a high reliance on borrowed funds. This elevated debt burden increases financial risk, especially in a challenging business environment. Furthermore, the company’s average return on equity is a modest 7.63%, reflecting low profitability relative to shareholders’ funds.
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Consistent Negative Earnings and Rising Costs
The company has reported negative results for five consecutive quarters, further exacerbating investor concerns. In the latest half-year period, net sales stood at ₹86.6 million, declining by 38.35%. Net profit plunged deeper into losses, registering a negative ₹24.21 million, a deterioration of 69.04%. Meanwhile, interest expenses have increased by 25.46% to ₹5.95 million, reflecting the cost of servicing its substantial debt load. These figures highlight ongoing operational difficulties and shrinking margins.
Adding to the risk profile, Supreme Engineering is currently generating negative EBITDA, indicating that its core operations are not generating sufficient earnings before accounting for interest, taxes, depreciation, and amortisation. This negative cash flow from operations is a red flag for investors, signalling potential liquidity issues and the need for restructuring or capital infusion.
Technical Indicators and Liquidity
From a technical perspective, the stock’s price is positioned above its 20-day and 50-day moving averages but remains below its 5-day, 100-day, and 200-day moving averages. This mixed technical picture suggests short-term weakness amid longer-term downward trends. Liquidity appears adequate for trading, with the stock’s traded value meeting thresholds for reasonable market activity, although the absence of institutional shareholders may limit broader market support.
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Conclusion: Why the Stock is Falling
In summary, Supreme Engineering Ltd’s stock is falling primarily due to its deteriorating financial health, persistent losses, and high debt levels. The company’s failure to report recent results, coupled with shrinking sales and profits, has eroded investor confidence. Despite a brief one-month rally, the stock’s long-term underperformance relative to the Sensex and sector peers underscores fundamental weaknesses. Rising interest costs and negative EBITDA further compound the risks, making the stock a challenging proposition for investors seeking stability and growth.
Until the company demonstrates a clear turnaround in operational performance and financial discipline, the downward pressure on its share price is likely to persist.
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