Why is Surat Trade & Merchantile Ltd falling/rising?

Recent Price Movement and Market Context

On 09 January, Surat Trade & Merchantile Ltd closed at ₹4.87, down by 2.01% or ₹0.10 from the previous session. The stock also hit a new 52-week low of ₹4.67 during the day, signalling ongoing bearish sentiment among investors. This decline is more pronounced than the broader market, with the stock underperforming its sector by 0.64% on the day. Over the past week and month, the stock has fallen by 4.51% and 6.35% respectively, significantly lagging the Sensex’s more modest declines of 2.55% and 1.29% over the same periods.

Year-to-date, the stock has declined by 2.99%, again underperforming the Sensex’s 1.93% drop. The longer-term trend is even more concerning, with the stock delivering a negative return of 37.88% over the last year, in stark contrast to the Sensex’s positive 7.67% gain. Over three and five years, the stock’s performance remains weak, with a 48.36% loss over three years compared to a 37.58% gain in the Sensex, and a modest 13.26% gain over five years versus the benchmark’s 71.32% rise.

Technical Indicators and Investor Participation

Technically, Surat Trade is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This persistent weakness across multiple timeframes suggests a lack of upward momentum and continued selling pressure. Investor participation has also waned, with delivery volumes on 08 January falling by 39.32% compared to the five-day average, indicating reduced buying interest and liquidity concerns. Although the stock remains liquid enough for trading, the diminished volume points to cautious investor sentiment.

Fundamental Weaknesses Driving the Decline

Surat Trade & Merchantile Ltd’s share price decline is underpinned by weak fundamental performance. The company has been reporting operating losses, which severely undermines its long-term financial health. Its ability to service debt is notably poor, with an average EBIT to interest ratio of -2.25, indicating that earnings before interest and tax are insufficient to cover interest expenses. This financial strain is compounded by a low average return on capital employed (ROCE) of 3.15%, signalling limited profitability relative to the capital invested.

Quarterly results further highlight the company’s struggles. Profit after tax (PAT) for the latest quarter stood at ₹0.27 crore, a steep decline of 92.7% compared to the average of the previous four quarters. Net sales also fell by 19.7% to ₹16.67 crore, reflecting weakening revenue streams. Interestingly, non-operating income accounted for 300% of profit before tax, suggesting that core business operations are not generating sufficient profits and the company is relying heavily on non-operating sources to sustain earnings.

Risk Profile and Historical Underperformance

The stock is considered risky due to its negative EBITDA and valuation metrics that are unfavourable compared to historical averages. Over the past year, the stock’s return of -37.88% coincides with a 22.8% decline in profits, underscoring deteriorating financial performance. Moreover, Surat Trade has consistently underperformed the BSE500 index over the last three annual periods, reinforcing concerns about its competitive position and growth prospects.

Conclusion: Why the Stock Is Falling

In summary, Surat Trade & Merchantile Ltd’s share price decline as of 09 January is driven by a combination of weak operational results, poor profitability, and sustained underperformance relative to market benchmarks. The company’s inability to generate positive earnings from its core business, coupled with a deteriorating financial position and falling investor interest, has weighed heavily on the stock. Technical indicators confirm the bearish trend, while the stock’s consistent lag behind the Sensex and BSE500 indices over multiple time horizons further dampens investor confidence. Until there is a marked improvement in fundamentals and a reversal in earnings trends, the stock is likely to remain under pressure.

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