MarketsMOJO Upgrades Rajapalayam Mills to 'Hold' Based on Healthy Growth and Attractive Valuation

Rajapalayam Mills, a microcap textile company, has recently been upgraded to a 'Hold' by MarketsMOJO on February 16, 2024. This upgrade is based on the company's healthy long-term growth, with an annual operating profit growth rate of 58.69%. The stock is also currently in a bullish range, with improved technical trends and bullish technical factors such as MACD and KST.
One of the main reasons for the 'Hold' rating is the company's attractive valuation, with a ROCE of 1.5 and an enterprise value to capital employed ratio of 0.6. This indicates that the stock is trading at a discount compared to its average historical valuations. However, it is important to note that while the stock has generated a return of 59.10% in the past year, its profits have fallen by -26.4%.

On the other hand, the company's management efficiency is a cause for concern, with a low ROCE of 1.28%. This signifies low profitability per unit of total capital, which includes both equity and debt. Additionally, the company has a high debt to EBITDA ratio of 13.05 times, indicating a low ability to service debt. The company's return on equity (avg) is also low at 4.83%.

In terms of financial performance, Rajapalayam Mills declared very negative results in December 2023, with a fall in net sales of -8.95%. The company has declared negative results for the last six consecutive quarters, with a significant decrease in profits and net sales. The interest expense for the quarter was also at its highest at Rs 20.98 crore.

It is worth noting that despite being a microcap company, domestic mutual funds hold only 0.77% of the company. This could signify that they are not comfortable with the current price or the business, as domestic mutual funds have the capability to conduct in-depth research on companies.

In conclusion, while Rajapalayam Mills has shown strong growth potential and is currently in a bullish range, its financial performance and management efficiency raise some concerns. The 'Hold' rating by MarketsMOJO suggests that investors should carefully consider these factors before making any investment decisions.