Why is Wanbury Ltd falling/rising?

Recent Price Performance and Market Comparison

Wanbury Ltd has underperformed significantly against the broader market indices over multiple time frames. In the past week, the stock has declined by 5.99%, compared to the Sensex’s modest fall of 1.83%. Over the last month, the stock’s loss deepened to 10.45%, while the Sensex dipped only 1.63%. Year-to-date, Wanbury has fallen 6.03%, again underperforming the Sensex’s 1.58% decline. The one-year performance is particularly stark, with Wanbury posting a negative return of 11.03%, whereas the Sensex has gained 8.40% in the same period. This persistent underperformance has weighed heavily on investor sentiment.

On the trading day of 12-Jan, Wanbury’s shares fell for the third consecutive day, accumulating a 6.09% loss over this short span. The stock touched an intraday low of ₹208.15, down 4.89% from the previous close, with heavier trading volumes concentrated near this low price point. This suggests selling pressure intensified as the day progressed. Furthermore, Wanbury is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling a bearish trend in the short to medium term.

Financial Performance: Profit Growth Amidst Sales and Debt Challenges

Despite the recent price weakness, Wanbury Ltd’s financials reveal a more nuanced picture. The company has demonstrated robust profit growth, with operating profit expanding at an annual rate of 88.77%. Profit before tax excluding other income for the latest quarter stood at ₹13.26 crores, marking a substantial 118.3% increase compared to the previous four-quarter average. Net sales for the latest six months reached ₹335.18 crores, growing by 23.90%, while profit after tax for the same period rose to ₹33.75 crores. These figures indicate strong operational momentum and improving profitability.

Wanbury’s return on capital employed (ROCE) is an attractive 33.3%, and the company’s enterprise value to capital employed ratio of 4.1 suggests it is trading at a discount relative to its peers’ historical valuations. The price-to-earnings-to-growth (PEG) ratio of 0.2 further highlights the stock’s undervaluation in relation to its earnings growth, which has surged by 83% over the past year.

Structural Concerns Weighing on Investor Confidence

However, these positive financial indicators are overshadowed by significant structural risks. Wanbury is a highly leveraged company, with an average debt-to-equity ratio of 3.36 times. This elevated debt level raises concerns about financial stability and the company’s ability to manage its obligations, especially in volatile market conditions.

Adding to investor unease is the high proportion of promoter shareholding that is pledged—currently at 86.67%. This figure has increased by 9.93% over the last quarter. In falling markets, such a high level of pledged shares can exert additional downward pressure on the stock price, as promoters may be forced to sell shares to meet margin calls or debt repayments.

Moreover, Wanbury’s long-term sales growth has been relatively modest, with net sales increasing at an annual rate of only 14.01% over the past five years. This slower growth trajectory contrasts with the company’s recent profit acceleration and may temper expectations for sustained expansion.

Conclusion: Balancing Growth Potential Against Financial Risks

In summary, Wanbury Ltd’s recent share price decline is primarily driven by its underperformance relative to the broader market, persistent selling pressure, and concerns over its high debt levels and promoter share pledging. While the company’s profit growth and attractive valuation metrics offer a positive outlook, these are currently overshadowed by structural financial risks and subdued long-term sales growth. Investors appear cautious, reflected in the stock’s trading below key moving averages and increased volume near intraday lows.

For those considering Wanbury Ltd, it is essential to weigh the company’s strong earnings momentum and discounted valuation against the risks posed by its leverage and promoter pledging. The stock’s recent performance suggests that market participants remain wary until these concerns are addressed or mitigated.

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 →