Companies that went from hero to zero

Maintaining a consistent growth trajectory is not everyone's cup of tea. While it is one thing to report strong financial metrics in a one-off year, sustaining the quality and growth of the company in the long run is a different challenge altogether.

So, we got curious and decided to use our newly launched 'Stock Ratings' tool to identify the companies that were top performers in the past, but are now struggling to stay afloat. We looked at BSE 500 companies which had a stock rating of four or higher at the end of March 2018 but declined to two or lower by the end of November 2023. We found three such companies.

Let's take a closer look at each of these stocks and the factors behind the decline in their ratings.

Lupin

In the past, Lupin was considered one of India's most prominent pharmaceutical companies. However, the management's decision to make two high-profile acquisitions in the US for $880 million eventually led to its downfall.

The acquisitions failed to perform as per expectations, and the company recorded an impairment cost (permanent reduction in the value of assets) of over Rs 2,500 crore between FY18 and FY20. Consequently, Lupin's PAT (profit after tax) fell from Rs 2,564 crore in FY17 to -Rs 400 crore in FY20. The company also faced price erosion in an already competitive US generic market. Hence, it failed to boost its revenue and profitability despite being the third largest company by medical prescriptions in the US market.

Zee Entertainment

The launch of OTT (over-the-top) platforms transformed how media and entertainment companies operated worldwide. While international giants like Amazon and Netflix made a huge splash in the Indian markets, domestic players failed to capitalise on the same.

Zee 's advertising revenue fell from Rs 5,037 crore in FY19 to Rs 4,059 in FY23, while its revenue from subscriptions and film productions grew meagerly. As a result, revenue and PAT grew by 3.9 and -29.8 per cent, respectively, over the last five years. Further, a changing business environment and corporate governance issues hindered the company's growth.

The Ramco Cements

Ramco has been consistently profitable and growing for most of the last decade. However, the cyclicality and highly capital-intensive nature of the cement industry have affected the company's performance in the last three years.

Like all other players in the industry, an adverse macro environment, including high raw material costs, triggered a fall in Ramco's EBIT (earnings before interest and tax) from Rs 1,201 crore in FY21 to Rs 680 crore in FY23. In addition, the management sanctioned a new greenfield production facility, which incurred a capex of Rs 1,765 crore in FY23. The capex was partially financed by debt, which increased the company's interest expense by almost 50 per cent, further pushing its PAT down.

Also read: Why you should use Value Research Stock Ratings