MarketsMOJO downgrades Narmada Agrobase to 'Sell' due to weak fundamentals and promoter confidence

Narmada Agrobase, a microcap company in the agriculture industry, has recently received a 'Sell' rating from MarketsMOJO on September 2, 2024. This downgrade is based on several factors that indicate weak long-term fundamentals and a decrease in promoter confidence.
One of the main reasons for the 'Sell' rating is the company's weak Return on Capital Employed (ROCE) of 7.24%, which is below the industry average. Additionally, the company has shown poor long-term growth with only a 1.20% annual growth in Net Sales and 5.96% in Operating profit over the last 5 years. This is further compounded by a high Debt to EBITDA ratio of 4.19 times, indicating a low ability to service debt.

Moreover, the promoters of Narmada Agrobase have decreased their stake in the company by -5.91% in the previous quarter, currently holding only 57.66%. This decrease in stake may suggest a lack of confidence in the company's future prospects.

In the past year, the stock has also underperformed the market with a return of only 15.29%, compared to the market's 38.49% returns. However, the company has shown positive results in the last two consecutive quarters, with a growth in Net Profit of 827.27%. Additionally, the company's Operating Cash Flow has also increased to Rs 1.23 crore, and Net Sales have grown by 54.21% to Rs 12.26 crore.

From a technical standpoint, the stock's trend is currently sideways, indicating no clear price momentum. The stock's technical trend has deteriorated since September 2, 2024, and has generated a -4.3% return since then.

Despite the 'Sell' rating, Narmada Agrobase has a Very Attractive valuation with a ROCE of 6.6 and an Enterprise value to Capital Employed ratio of 1.5. The stock is also trading at a discount compared to its historical valuations. However, it is important to note that while the stock has generated a return of 15.29% in the past year, its profits have only risen by 37%, resulting in a PEG ratio of 0.3.

In conclusion, while Narmada Agrobase has shown positive results in the past two quarters, the company's weak long-term fundamentals and decrease in promoter confidence warrant a 'Sell' rating from MarketsMOJO. Investors should carefully consider these factors before making any investment decisions.