Reversal from Oversold Zone: A ‘21% Upside’ Opportunity for Bulls!

The benchmark Nifty 50 index is still trading in the red zone, losing 0.5% to 17,765, by 1:43 PM IST but most of the intraday losses have been recovered so far. The fight between bulls and bears is deadlocked and the sectoral breadth is still mixed. 

To stick to the stock-specific action, Heranba Industries Ltd (NS: HERN ) should be on the watchlist of bulls. The company primarily manufactures and exports crop protection chemicals, having a market capitalization of INR 1,287 crores. It has 4 manufacturing plants with 9400+ dealers across India and a robust presence in 65+ countries.

The company recently came out with its disappointing Q3 FY23 earnings report, declaring a 34.85% QoQ decline in revenue to INR 276.68 crores while net income tanked 73.19% QoQ to INR 12.64 crores. Its 9M FY23 revenue stood at INR 1,065.5 crores, dented by a challenging global macro environment including rising inflation in major economies, prolonged geopolitical concerns and a slowdown in demand. Higher raw material prices and an increase in power & fuel costs squeezed EBITDA margins during 9M FY23.

Image Description: Daily chart of Heranba Industries with volume bars at the bottom

Image Source: Investing.com

All these turbulences were reflected in the share price of Heranba Industries which fell 53.3% in a period of one year. On the flip side of all these negatives, the stock now trades at a P/E ratio of 6.68 (as per FY22 earnings), compared to the sector’s average of 13.23, making it a good value proposition. 

Even on the technical front, the stock is extremely oversold with the RSI (daily, 14) giving a reading of only 4.29 on 2 February 2023. It’s difficult to recall when was the last time I had seen such a low RSI reading. A technical bounceback from the current levels has quite a high likelihood.

Yesterday, the stock made its first green candle after 22 straight red ones! That’s the kind of oversold status there is in this counter and today’s 4.66% rally to INR 336.7, breaking above yesterday’s high is further indicating an increasing demand. Even a conservative 50% retracement of this year’s fall would propel the stock by 21% to INR 410.