MarketsMOJO Downgrades KG Petrochem to 'Sell' Due to Weak Fundamentals and High Debt

KG Petrochem, a microcap company in the textile industry, has recently been downgraded to a 'Sell' by MarketsMOJO on November 27, 2024. This decision was based on several factors, including weak long-term fundamental strength, poor growth, and a high debt to EBITDA ratio.
The company's average Return on Capital Employed (ROCE) over the last 5 years has been 7.24%, indicating a weak long-term fundamental strength. Additionally, its net sales have only grown by 0.19% annually and operating profit by 10.99% over the same period, showing poor long-term growth.

Furthermore, KG Petrochem has a high Debt to EBITDA ratio of 3.52 times, indicating a low ability to service debt. In the latest quarter, the company's interest has grown by 25.29% and non-operating income is 164.38% of its Profit Before Tax (PBT).

The stock has also underperformed the market in the last 1 year, generating a return of only 0.61% compared to the market's (BSE 500) return of 28.06%. However, there are some mildly bullish technical indicators for the stock, such as MACD, KST, and OBV.

Despite its current performance, KG Petrochem has an attractive valuation with a ROCE of 0.8 and an Enterprise value to Capital Employed ratio of 0.8. The stock is also trading at a discount compared to its historical valuations.

It is worth noting that while the stock has only generated a return of 0.61% in the past year, its profits have risen by a significant 501%. The majority shareholders of KG Petrochem are the promoters, indicating their confidence in the company's future prospects.

In conclusion, MarketsMOJO's downgrade of KG Petrochem to 'Sell' is based on its weak long-term fundamental strength, poor growth, and high debt to EBITDA ratio. However, the stock has some mildly bullish technical indicators and an attractive valuation, and its profits have shown a significant increase in the past year.