Why is TCPL Packaging falling/rising?

Stock Performance Against Benchmarks

TCPL Packaging's recent price movement has been disappointing when compared to the broader market. Over the past week, the stock declined by 2.22%, significantly underperforming the Sensex's modest 0.52% gain. The one-month performance is even more stark, with the stock falling nearly 10%, while the Sensex rose by 0.95%. Year-to-date, TCPL Packaging has lost 6.79%, contrasting sharply with the Sensex's 9.12% gain. Even over the last year, the stock has declined by 7.68%, whereas the benchmark index appreciated by 4.89%. Despite these short-term setbacks, the company has delivered impressive long-term returns, with a five-year gain of 626.92%, far outpacing the Sensex's 84.97% rise.

Technical and Trading Indicators Signal Weakness

On the technical front, TCPL Packaging is trading below all major moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This persistent weakness suggests a bearish trend in the near term. The stock is also hovering just 0.33% above its 52-week low of ₹2,970.05, indicating it is close to its lowest price point in a year. Trading volumes have been erratic, with the stock not trading on one of the last 20 days, and the weighted average price shows that more volume has been transacted near the lower price levels. Investor participation appears to be waning, as evidenced by a sharp 71.68% drop in delivery volume on 11 Dec compared to the five-day average. Although liquidity remains adequate for small trades, these factors collectively point to subdued market interest and selling pressure.

Fundamental Factors Behind the Decline

Despite the recent price weakness, TCPL Packaging maintains a strong management efficiency profile, with a return on capital employed (ROCE) of 16.85%, which is considered healthy. The company’s valuation metrics also suggest a fair price, with an enterprise value to capital employed ratio of 2.5 and a ROCE of 15.3, indicating that the stock trades at a discount relative to its peers’ historical averages. Furthermore, the company’s profits have grown by 10.1% over the past year, even as the stock price declined, resulting in a price-to-earnings-growth (PEG) ratio of 2.1. Majority ownership remains with promoters, which often signals stability in governance.

However, recent quarterly results have raised concerns among investors. The interest expense for the latest six months surged by 40.25% to ₹46.10 crore, exerting pressure on profitability. More critically, profit before tax excluding other income (PBT less OI) for the quarter fell by 21.2% compared to the average of the previous four quarters, signalling a slowdown in core earnings. Additionally, the half-year ROCE dropped to its lowest level at 17.11%, suggesting diminishing returns on capital employed. These negative financial indicators have likely contributed to the stock’s underperformance and investor caution.

Investor Sentiment and Outlook

The combination of disappointing quarterly results, rising interest costs, and declining profitability metrics has dampened investor sentiment towards TCPL Packaging. The stock’s failure to maintain momentum relative to the Sensex and its sector peers, alongside technical weakness and reduced trading volumes, underscores a cautious market stance. While the company’s long-term fundamentals and management efficiency remain commendable, the near-term challenges reflected in earnings and capital returns have weighed heavily on the share price.

Investors should closely monitor upcoming quarterly disclosures and any strategic initiatives by the company to address rising costs and improve profitability. Until then, the stock’s proximity to its 52-week low and persistent underperformance suggest a cautious approach may be warranted.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →