Stock in Action – GRSE
by
Tanushree Jaiswal
23rd May 2024
Stock in Action – RCF
Tanushree Jaiswal
Tanushree Jaiswal
24th May 2024 - 04:01 pm
RCF Share Price Movement
Probable Rationale Behind the RCF Stock Surge
1. Stable ROCE Amid Increased Capital
- Rashtriya Chemicals and Fertilizers (RCF) has seen its returns on capital employed (ROCE) remain steady at 6.0% over the past five years, despite a 60% increase in capital employed.
- The stability in ROCE, despite the increased capital, suggests the company is not deploying funds into high-return investments, which could raise concerns about long-term growth prospects.
2. Reduction in Current Liabilities
- Over the last five years, RCF has successfully reduced its current liabilities to 34% of total assets.
- This reduction in liabilities indicates improved financial stability, as the company now has fewer outstanding obligations to suppliers and short-term creditors, thereby reducing operational risks.
3. Stock Performance
- Despite the steady ROCE and increased capital, RCF's stock has delivered an impressive 182% gain to shareholders over the past five years.
- This significant stock performance suggests investor confidence in the company's future potential, even if current returns on capital have not improved.
4. Technical Analysis Insights
- The stock has been consolidating around the 130-150 levels, indicating potential for a breakout.
- A decisive breach of the 155 level is expected to further improve the stock's bias, with targets set at 180-200 levels.
- The Relative Strength Index (RSI) has shown improvement, indicating a trend reversal and potential for positive performance in the coming days.
5. Support and Resistance Levels
- The major support level for RCF stock is near the 200-day moving average (DMA) at 139.
- Investors are advised to maintain a stop loss at 135, with an expected upside target of 180 levels.
Rashtriya Chemicals & Fertilizers Quarterly Analysis
| Mar-23 | Jun-23 | Sep-23 | Dec-23 | Mar-24 | |
| Sales + | 4,684 | 4,043 | 4,155 | 4,904 | 3,880 |
| Operating Profit | 185 | 129 | 105 | 84 | 193 |
| Net Profit + | 160 | 68 | 51 | 11 | 95 |
Analysis & Interpretations
1. Sales Trends
- The sales figures show significant fluctuations over the five quarters.
- Peak sales occurred in Dec-23 at ₹4,904 crore, while the lowest was in Mar-24 at ₹3,880 crore.
- Despite a dip in Mar-24, sales in Mar-24 are still higher than in Jun-23 and Sep-23, indicating some resilience in demand.
2. Operating Profit Trends
- Operating profit has been inconsistent, with the highest in Mar-24 at ₹193 crore and the lowest in Dec-23 at ₹84 crore.
- The significant increase from Dec-23 to Mar-24 suggests a possible recovery or efficiency improvement in operations.
- Despite the fluctuating operating profits, the Mar-24 figure suggests the company might be overcoming operational challenges.
3. Net Profit Trends
- Net profit reached a peak in Mar-23 at ₹160 crore, with the lowest in Dec-23 at ₹11 crore.
- The net profit rebounded to ₹95 crore in Mar-24, indicating recovery from the low in Dec-23.
- The recovery in net profit suggests improving bottom-line performance, potentially due to cost management or increased operational efficiency.
Conclusion
1. Positives
- Strong recovery in operating and net profit in Mar-24.
- Sales remain relatively stable, despite the lowest figure in Mar-24, suggesting demand stability.
- The significant increase in operating profit from Dec-23 to Mar-24 indicates improved efficiency.
2. Concerns
- Significant fluctuations in quarterly performance indicate volatility.
- A low point in net profit in Dec-23 suggests past challenges that need to be monitored.
- Sales drop in Mar-24 needs to be understood in the context of market conditions or seasonal factors.
Overall, while Rashtriya Chemicals & Fertilizers shows signs of recovery and resilience, the volatility in quarterly results suggests a cautious approach. The improvements in Mar-24 are promising, but sustained performance will be key to a positive long-term outlook.
Investor Sentiment and Future Outlook
While RCF has not managed to accelerate its returns on capital, the company's strategic reduction in liabilities and stable ROCE amidst increased capital have contributed to a positive investor sentiment.
The impressive stock performance and technical indicators suggest potential for further gains, making it an attractive option for investors.
However, given the underlying trends, the likelihood of RCF becoming a multi-bagger from this point may not be high, but short-term prospects appear promising for those looking for an upside target around 180 levels.
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