Why is Welspun Living falling/rising?

Robust Short-Term Price Performance

Welspun Living’s recent price movement has been notably strong, with the stock gaining 9.10% over the past week and an even more impressive 15.76% over the last month. This contrasts sharply with the broader Sensex, which has recorded modest gains of 0.56% and 1.27% over the same periods respectively. The stock’s intraday high of ₹151.10 on 28-Nov marked a 14.17% increase, underscoring heightened buying interest during the trading session. Furthermore, the stock has consistently traded above its key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day marks, signalling a positive technical momentum.

Despite this upward price trajectory, the weighted average price indicates that a larger volume of shares traded closer to the day’s lower price levels, suggesting some caution among investors. Additionally, delivery volumes have declined sharply by nearly 60% compared to the five-day average, pointing to reduced investor participation in recent sessions. Liquidity remains adequate, with the stock able to support trades worth approximately ₹0.39 crore based on 2% of the five-day average traded value.

Valuation and Profitability Context

Welspun Living currently trades at a fair valuation, supported by a return on capital employed (ROCE) of 8.9%, and an enterprise value to capital employed ratio of 2.4. These metrics suggest the stock is reasonably priced relative to its capital base. Moreover, the stock is trading at a discount compared to the historical valuations of its peers, which may be attracting value-oriented investors.

However, the company’s financial performance presents a more nuanced picture. Over the past year, the stock has delivered a negative return of 2.30%, underperforming the Sensex’s 8.43% gain. More concerning is the sharp decline in profitability, with net profits falling by 50.2% over the same period. This erosion in earnings reflects ongoing operational challenges that have weighed on investor sentiment.

Long-Term Growth and Profitability Challenges

Welspun Living’s long-term growth trajectory has been subdued, with operating profit shrinking at an annualised rate of 2.50% over the last five years. The company has reported negative results for five consecutive quarters, highlighting persistent difficulties in reversing its profit decline. The latest quarterly profit after tax (PAT) stood at ₹12.98 crore, representing a steep 90.4% drop compared to the average of the previous four quarters.

Additionally, the company’s half-year ROCE has dipped to a low of 9.04%, while the operating profit to interest coverage ratio has fallen to 3.54 times, indicating tighter margins and increased financial risk. These factors collectively suggest that despite the recent surge in share price, underlying fundamentals remain under pressure.

Investor Sentiment and Shareholding

The majority shareholding by promoters provides a degree of stability in ownership, which can be a positive factor for investors seeking long-term commitment from company insiders. Nonetheless, the recent decline in delivery volumes suggests some hesitation among retail and institutional investors, possibly reflecting concerns about the company’s profitability trends and growth prospects.

In summary, Welspun Living’s stock price rise on 28-Nov is driven primarily by short-term technical strength and relative valuation appeal compared to peers. However, the company’s ongoing profit declines, weak long-term growth, and reduced investor participation temper the optimism. Investors should weigh the recent price gains against the fundamental challenges before making investment decisions.

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