MarketsMOJO upgrades Virinchi stock to 'Hold' despite weak fundamentals and underperformance

MarketsMOJO has recently upgraded its stock call on Virinchi, an IT software company, to 'Hold'. This upgrade comes as the stock has shown a technically bullish trend, with improvements in various technical indicators such as MACD, Bollinger Band, KST, and OBV. Additionally, the company has a very attractive valuation with a ROCE of 7.3 and a 1 Enterprise value to Capital Employed.
Despite the positive technical outlook, the company has weak long-term fundamental strength, with a -4.33% CAGR growth in operating profits over the last 5 years. This is reflected in the low profitability per unit of shareholders' funds, with a Return on Equity (avg) of 8.02%. The company's recent financial results for December 2023 also show a decline in PBT LESS OI(Q) at Rs 4.80 cr, and NET SALES(Q) at Rs 72.56 cr.

However, the stock has underperformed the market in the last 1 year, generating a return of only 9.86% compared to the market's (BSE 500) returns of 37.06%. This could be a cause for concern for investors.

It is important to note that the majority shareholders of Virinchi are non-institutional investors. This could indicate a lack of confidence from institutional investors in the company's future potential.

Overall, while the technical indicators are positive, the weak long-term fundamentals and underperformance in the market may be reasons for the 'Hold' rating on Virinchi's stock. Investors should carefully consider these factors before making any investment decisions.