Persistent Underperformance Against Benchmarks
Vardhman Acrylics has consistently lagged behind the broader market indices over multiple time horizons. Over the past week, the stock declined by 3.77%, contrasting sharply with the Sensex’s modest gain of 0.83%. This negative trend extends over longer periods, with the stock falling nearly 9% in the last month while the Sensex advanced by 1.76%. Year-to-date, the divergence is even more pronounced: Vardhman Acrylics has plummeted by almost 30%, whereas the Sensex has appreciated by 10.7%. Over the past year and three years, the stock’s returns have been deeply negative, at -30.57% and -27.01% respectively, while the Sensex has delivered positive returns of 8.47% and 39.14%. Even over a five-year span, despite a modest gain of 23.16%, the stock has significantly underperformed the Sensex’s near 100% rise.
Technical Indicators and Market Sentiment
From a technical perspective, Vardhman Acrylics is trading below all major moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This positioning typically signals bearish momentum and weak investor confidence. The stock is also hovering close to its 52-week low, just 4.42% above the bottom price of ₹36.53, underscoring the pressure on its valuation. Furthermore, recent trading volumes have declined, with delivery volumes on 28 November falling by over 32% compared to the five-day average, indicating reduced investor participation and interest.
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Financial Performance and Profitability Concerns
The company’s financial results have been underwhelming, contributing to the negative sentiment. Operating profit has contracted at an alarming annual rate of -164.13% over the last five years, signalling severe operational challenges. The latest nine-month profit after tax (PAT) stood at ₹6.21 crore, reflecting a decline of 44.5% compared to previous periods. Return on capital employed (ROCE) is notably low at 5.60%, indicating inefficient utilisation of capital resources. Additionally, the debtors turnover ratio is at a low 2.05 times, suggesting potential issues with receivables management and cash flow.
Risk Profile and Valuation
Despite a low debt-to-equity ratio averaging zero, which typically reduces financial risk, the company’s negative operating profits and deteriorating earnings have heightened concerns. The stock is considered risky relative to its historical valuation norms. Over the past year, the stock’s return of -30.57% has been accompanied by a 39.4% decline in profits, underscoring the disconnect between market performance and fundamental health. This risk is compounded by the stock’s consistent underperformance against the BSE500 index over the last three years, reinforcing its status as a weak performer in the broader market context.
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Dividend Yield and Liquidity
On a positive note, the stock offers a relatively high dividend yield of 3.83% at the current price, which may provide some income cushion for investors. Liquidity remains adequate, with the stock’s trading volumes sufficient to support reasonable trade sizes. However, these factors have not been sufficient to offset the prevailing negative sentiment driven by weak earnings and market underperformance.
Conclusion
In summary, Vardhman Acrylics Ltd’s share price decline on 01-Dec is primarily attributable to its sustained poor financial performance, including sharply falling profits and low returns on capital, combined with consistent underperformance relative to market benchmarks. Technical indicators and reduced investor participation further reinforce the bearish outlook. While the company’s low debt levels and dividend yield offer some positives, these have not been enough to stem the stock’s downward trajectory amid ongoing operational challenges and market scepticism.
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