Fermenta Biotech Faces Challenges Amidst Declining Operating Profits and High Debt Levels

Fermenta Biotech, a small-cap player in the pharmaceuticals and drugs sector, has recently come under scrutiny due to its financial performance metrics. Over the past five years, the company has experienced a significant decline in operating profits, with a compound annual growth rate (CAGR) of -166.25%. This troubling trend raises concerns about its long-term fundamental strength.
The company's ability to manage its debt is also a point of concern, as indicated by a high Debt to EBITDA ratio of 3.59 times. Despite these challenges, Fermenta Biotech has reported a notable increase in net sales, which reached Rs 95.03 crore, reflecting a growth of 66.98%. Additionally, profit before tax (PBT) has shown impressive growth, rising by 137.98% to Rs 8.94 crore.

While the stock has generated a remarkable return of 152.96% over the past year, significantly outperforming the BSE 500 index, its valuation appears expensive with a return on capital employed (ROCE) of 6.6 and an enterprise value to capital employed ratio of 3.2. Notably, domestic mutual funds hold no stake in the company, suggesting a cautious approach to its current valuation.