This smallcap stock fell 14 per cent in two trading sessions. Know the fundamental reason?

Pumps manufacturing exporter Shakti Pumps post Q3 earnings announcement had a steep fall of 10.5 per cent in an hour

Two days of continuous selling has been witnessed in Shakti Pumps, sliding from Rs 702 to Rs 603 in less than two trading sessions. 

Smallcap stocks rally very fast as well as fall at the same pace. Because of disappointing numbers market punished the stock with a steep fall in price. In Q3FY22, revenue is down 14 per cent and net profit declined 44 per cent on YoY with high base effect and extreme margin pressure. 

Q3 earnings report: 

On a consolidated basis, Shakti pumps revenue declined 14 per cent to Rs 270 crore on a YoY and 28 per cent down on QoQ. The domestic business contributed around 89 per cent of total revenue which declined 9.66 per cent on YoY. International business contributed the remaining 11 per cent declined 4.4 per cent on QoQ. The evident reason is the base effect, last December same quarter had exceptional revenue growth of 240 per cent on YoY. 

EBITDA declined 45 per cent to Rs 29.5 crore on YoY and a decline of 16 per cent on QoQ. The EBITDA margin is 10.16 per cent got contracted 550 bps on YoY. There is heavy margin pressure due to the rise in input cost. Raw material prices for this quarter has increased drastically. Raw material as a per cent to sales for Q3FY22 was 85 per cent against 71 per cent in Q3FY21. 

Net Profit declined 44 per cent to Rs 14.7 crore on YoY and a decline of 29% on QoQ. The Net profit margin is 5.5% which got contracted 350 bps on YoY. 

This is a tough quarter for Shakti Pumps as they failed to increase the sales and maintain margins. We have to wait and watch their peer performance in the coming days to get clarity whether it is company-specific or pumps industry as a whole struggled in Q3FY22. 

At 3 PM, Shakti Pumps was trading at Rs 605 down by 4 per cent for the day.