Wednesday, November 18, 2009

Stock Chart Pattern - Sulzer India

Before we take a look at the stock chart pattern of Sulzer India, here are some facts to consider about the company and its business:-

  1. A small-cap stock (market cap < Rs 300 Cr) which is 80% owned by its Swiss parent
  2. Wide economic moat due to a high-tech niche area of process engineering, with technology support from its parent
  3. Products and value-added services that serve diverse industries like chemical, oil and gas, water and waste water, energy, foods, polymer production, fiber production, resins and adhesives, pulp and paper, cosmetics and detergents
  4. Positive cash flows from operations in 4 of the past 5 years; zero debt; P/E < 11; double-digit net margins; regular dividend payments

All these seem to point to a gem, asking to be picked up by value investors. The 1 year closing chart pattern of Sulzer India shows a good up move from the low made in Mar '09:-


After moving quickly above the 200 day EMA in Mar '09, the stock received strong support from the 50 day EMA, till it broke down below it in Oct '09. The medium-term average has now turned into a resistance level, as the bulls try to regain their control.

The slow stochastic has moved below the 50% level with the %K below the %D line. The MACD is in the negative zone, though it has crossed above the signal line. The RSI bounced off the oversold level and is trying to move above the 50% level. The technical indicators are pointing to a continuation of the correction.

There are other concerns as well. The most serious being the overseas parent's interest, or the lack of it, in its Indian subsidiary. A delisting plan that had gone awry earlier may be revived in future. The management isn't particularly investor-friendly, with sketchy and infrequent investor communications.

The stock only trades in the BSE, and volumes are thin. About 15% of the equity capital is held by the public. This often leads to wild swings in prices. That may explain why a fundamentally strong company with a strong balance sheet is trading at a comparatively low valuation.

Bottomline? The stock chart pattern of Sulzer India is trying to fight off the bears. Risk-averse investors should note that fundamentally strong companies need not be investment-worthy. The low equity capital and thin trading volumes makes entry and exit difficult. Intrepid investors can buy the dips.

(Note: Thanks to reader Sanjeev for suggesting this stock for analysis.)


Sanjeev Bhatia said...

Excellent Coverage Subhankar Ji, Thanks for covering so may hitherto unknown facts about the company. I have alwyas liked this company because of strong fundamentals but you have rightly pointed out that companies which are not investor friendly, despite being fundamentally sound, are not investment grade. It is heartening for me that atleast it passed the fundamental at least I can pat myself on the back for being right on fundas....LOL

Will be sending you another stock shortly.


Sanjeev Bhatia

Subhankar said...

Regret not having responded to your comment sooner, Sanjeev.

In a letter dated Mar 4, 2010 the company has informed BSE about its intent to delist. I had mentioned about the possibility in my post.