Over the past year, the Indian equity market has seen remarkable growth, highlighted by the Nifty 500 index rising 39.1% in FY24. But as always, the rising tide lifted some boats higher, while others sprung leaks. In this edition of Chart of the Week, we take a look at companies that saw big declines in their share prices, underperforming the index and eating into investors' wealth in FY24.
At the end of FY24, 45 Nifty 500 companies feature in the Wealth Destroyers screener, which looks for negative share price changes in the past year. The chemicals and petrochemicals sector had a difficult year and dominates this list with the highest number (eleven) of wealth destroyers. These include UPL, Navin Fluorine International, Atul and Aether Industries among others.
Retailing and logistics companies also faced challenges with above-average inflation in FY24, which peaked in July 2023 at 7.4%. However, central banks worldwide are trying to bring inflation down by keeping interest rates higher. Still, rising geopolitical tensions, and crude production cuts by OPEC+ have kept inflation sticky.
Regulatory issues trigger sell-off in Paytm and Rajesh Exports
In the gems and jewellery industry, which rose 78.4% in the past year, Rajesh Exports depreciated by 50.7%. The company is involved in various compliance issues, including instances of missing documents during earnings filings, which were further compounded by declining revenues. Their net profit for Q3FY24 slumped 97% YoY at Rs 12.4 crore. According to Trendlyne’s Technicals, Rajesh Exports fell to a 5-year low at Rs 261 on March 28, 2024.
Similarly, internet software and services company, One97 Communications faced a significant setback following the Reserve Bank of India’s (RBI) directive on January 31. The RBI ordered Paytm Payments Bank to cease banking services due to persistent non-compliance concerns. However, the stock has been stabilizing after its Founder & CEO, Vijay Shekhar Sharma resigned from the Payments Bank board. At the same time, the company also withdrew its nominee and the bank’s future business is to be led by a reconstituted board. The company’s share price has gone down 39.1% in the past quarter.
Weak demand and Chinese competition hurt the chemical industry’s profits
The chemical sector faced continued price pressures in the past year, mainly due to a weak and erratic monsoon. As a result, major agrochemical company UPL posted a net loss of Rs 1,217 crore in Q3FY24, compared to a profit of Rs 1,087 crore in Q3FY23.
Another contributing factor was a sharp decrease in price realisation, and higher supplies from Chinese competitors as Covid-related restrictions eased.
Commodity chemicals company, Navin Fluorine International declined due to industry-wide channel destocking and inventory reductions. As a result, the company’s net profit fell 26.8% YoY to Rs 78 crore in Q3FY24. Navin Fluorine’s share price has slumped by 25.8% in the past year. Meanwhile, specialty chemicals company, Atul is down 14% in the past year, with a fall of 15.1% in the past quarter. This company has also witnessed its net profits fall 32.5% YoY in Q3FY24.
Sticky inflation eats into logistics and retail companies' revenue
As inflation in India peaked in 2023, people started paring down their discretionary spending. As demand softened, footwear company Campus Activewear saw its net profit contract 48.4% YoY in Q3FY24 at Rs 24.9 crore. At the same time, Vedant Fashions, also known as Manyavar, witnessed its sales in 9MFY24 increase only marginally to Rs 1,050 crore. However, the company saw its net profit in 9MFY24 fell 25.4% YoY to Rs 320 crore. This ethnic wear manufacturer witnessed its share price fall 24.8% in the past quarter because wedding-related consumption remained muted in FY24, unlike FY23, due to the lower number of wedding dates and the broader impact of consumption slowdown.
Meanwhile, logistics company Allcargo also declined 15.4% in the past year. This is because their net profit in Q3FY24 fell by 93% YoY to Rs 11 crore. This was on the back of significant losses incurred in some of the markets in the US and Germany. The company expects global trade to revive in Q2FY25.
Edible oils company, Adani Wilmar’s share price slumped after the Hindenburg report came out on January 24 last year, which alleged that the Adani group was manipulating and inflating stock prices. Making matters worse, Wilmar’s net profit in 9MFY24 went down by 76% YoY to Rs 122 crore. The company’s revenue in 9MFY24 decreased 13% YoY to Rs 36,539 crore. This contraction in revenue was mainly due to weak demand in the edible oil segment (contributing 75% to its revenue) and lower product prices.
A cancelled merger creates major hurdles for Zee Entertainment
Finally, media company Zee Entertainment has fallen 28.8% in the past year and 46.2% in the past quarter mainly because Sony Group’s India unit called off its proposed merger amid questions around fund diversion and corporate governance.
Adding to its woes, Reliance Industries entered into a joint venture with Walt Disney on February 28 to merge Viacom18 and Star India. This deal which resulted in a media behemoth worth Rs 70,352 crore, will negatively impact Zee as it would be difficult for the company to scale up its market share. The lesson here is that even in a rising economy and a surging stock market, there are many stumbles – self-inflicted and otherwise.
