Akar Auto Industries Faces Financial Struggles Amidst Low Sales and High Debt Concerns

Akar Auto Industries, a microcap player in the engineering sector, has recently undergone an evaluation adjustment that reflects its current market standing. The company reported flat financial performance for the quarter ending December 2024, with net sales recorded at Rs 92.24 crore, marking a notable low. Additionally, the debtors turnover ratio has reached its lowest point at 5.77 times, indicating challenges in managing receivables.
The company has been grappling with high debt levels, which has raised concerns regarding its long-term fundamental strength. The ability to service this debt appears constrained, as evidenced by a poor EBIT to interest ratio averaging 1.39. Over the past five years, net sales have grown at an annual rate of 11.99%, while operating profit has increased at 18.13%. However, these figures suggest limited growth potential.

Despite a valuation that appears attractive with a return on capital employed (ROCE) of 18.5 and a favorable enterprise value to capital employed ratio of 1.5, Akar Auto Industries has underperformed the broader market. The stock has generated a return of -24.00% over the past year, significantly outpacing the negative returns of the BSE 500 index.

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