Why is Supreme Petrochem Ltd falling/rising?

Intraday Performance and Market Context

Supreme Petrochem’s stock demonstrated strong momentum during the trading session, reaching an intraday high of ₹582.90, marking a 10.74% increase from its previous close. The stock outperformed its sector by 5.23% on the day, signalling renewed investor interest. However, the trading range was wide at ₹63.55, indicating volatility. Notably, the weighted average price suggests that more volume was traded closer to the lower end of the day’s price range, which may imply some profit-taking or cautious buying.

From a technical perspective, the stock price currently sits above its 5-day moving average but remains below its 20-day, 50-day, 100-day, and 200-day moving averages. This positioning suggests a short-term positive trend within a longer-term bearish context. Additionally, investor participation appears to be waning, with delivery volumes on 29 January falling by 44.26% compared to the five-day average, which could temper the sustainability of the rally.

Long-Term Returns and Valuation

Examining the stock’s performance over various time frames reveals a mixed picture. Over the past week, Supreme Petrochem has gained 11.67%, significantly outperforming the Sensex’s 0.90% rise. However, over the last month and year-to-date, the stock has declined by 12.55% and 13.11% respectively, underperforming the Sensex’s corresponding declines of 2.84% and 3.46%. Over a one-year horizon, the stock has fallen 7.38%, while the Sensex has gained 7.18%, highlighting the company’s relative weakness.

Despite recent setbacks, the company’s longer-term returns remain impressive, with a 3-year gain of 55.77% and a remarkable 5-year return of 204.27%, far outpacing the Sensex’s 38.27% and 77.74% respectively. This suggests that while short-term challenges persist, the stock has delivered substantial value to patient investors over time.

Financial Health and Profitability Concerns

Supreme Petrochem boasts a high management efficiency, reflected in a return on equity (ROE) of 30.47%, which is a strong indicator of effective capital utilisation. The company also maintains a low debt-to-equity ratio, averaging zero, which reduces financial risk and interest burden. Its price-to-book value stands at 4.7, suggesting the stock is trading at a fair valuation relative to its peers and historical averages.

However, the company’s recent financial results paint a less favourable picture. Net sales have declined by 6.85%, and profits have fallen sharply by 34.6% over the past year. The company has reported negative results for three consecutive quarters, with quarterly profit after tax (PAT) dropping 53.8% compared to the previous four-quarter average. Return on capital employed (ROCE) is at a low 18.01%, and cash and cash equivalents have decreased to ₹342.14 crores, signalling tightening liquidity.

Operating profit growth has been negative at an annual rate of -1.66% over the last five years, indicating poor long-term growth prospects. These factors have contributed to the stock’s underperformance relative to the broader market, including the BSE500, which has delivered a 7.95% return over the past year.

Investor Sentiment and Outlook

The recent price rise on 30 January appears to be driven by short-term optimism and a rebound from oversold levels rather than a fundamental turnaround. The stock’s ability to outperform its sector and the broader market on the day suggests some renewed buying interest, possibly from value investors attracted by the company’s strong ROE and low leverage. Nevertheless, the decline in delivery volumes and the stock’s position below key moving averages indicate caution among investors.

Given the company’s weak recent earnings performance, declining sales, and poor profit growth, the rally may be limited unless there is a clear improvement in operational results. The majority ownership by promoters could provide stability, but investors will likely await more positive quarterly results before committing to a sustained uptrend.

In summary, Supreme Petrochem Ltd’s stock is rising on 30 January due to short-term buying interest and technical factors, despite ongoing fundamental challenges that have weighed on its performance over the past year.

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 →