Why Swan Energy Share Price is Falling

Mid-cap stocks have been in the line of fire since the start of this week, with many counters hitting the lower circuit as there are only sellers.

The meltdown is happening even as domestic mutual funds and foreign institutional buyers have been net buyers.

This selloff in the broader markets worsened on Wednesday, with the benchmark gauges for the small and mid-cap stocks dropping the most in two years amid valuation concerns raised by the market regulator.

The Nifty Midcap index dropped 4.4% on 13 March 2024, which was the biggest single-day fall in nearly two years.

However, following these substantial losses, midcap stocks rebounded, recording healthy gains of over 1%.

Amid the volatility in the midcap space, Swan Energy is one stock that has been particularly affected, witnessing a 25% decline over the past five days.

Let's find out what is causing the drop in share price.

#1 Stake Sale

Shares of Swan Energy declined as much as 17% in trade on 12 March, slipping for the seventh straight session.

The stock dipped after a block deal on NSE. The deal size, as per reports, was Rs 105.9 million (m).

Post the block deal, shares of the company traded 10% lower, which was 11% lower than its qualified institution placement (QIP) price of Rs 670 apiece.

On 29 February, Swan Energy, through a release, said that it had raised Rs 30 billion (bn) through a QIP, which was priced at Rs 670 per share.

Furthermore, on 5 March 2024, Leading Light Fund VCC sold 0.9% of its stake, at an average price of Rs 721.1 through a bulk deal.

This additional selling pressure contributed to the decline in Swan Energy's stock price, exacerbating the downward trend.

#2 Profit Booking

Swan Energy witnessed a remarkable surge of nearly 50% in its shares, soaring from Rs 509 on 1 January 2024 to Rs 762.6 on 1 March 2024.

This surge can be attributed to the company's formal takeover of management control of Reliance Naval and Engineering from the National Company Law Tribunal-appointed Monitoring Committee in January 2024.

Additionally, the company's successful raising of Rs 30 bn through a Qualified Institutional Placement (QIP) and its subsidiary, Swan LNG Pvt Ltd (SLPL), prepaying its entire loan of Rs 22.1 bn along with interest to the consortium of banks, further fuelled the rally.

This prepayment is expected to save SLPL approximately Rs 2.5 bn in interest payments, consequently strengthening Swan Group's balance sheet.

As a result, Swan Energy's debt was reduced to Rs 16.8 bn post prepayment, compared to the external debt position of the group, which stood at Rs 38.2 bn in December 2023.

These positive developments collectively propelled Swan Energy's share price by 50% within two months, presenting investors with an opportune moment to capitalize on their gains.

However, despite the surge, the company's stock exhibits a remarkably high price-to-equity (P/E) ratio of 4,942.18 against a price-to-book (P/B) value of 16.37.

Due to such high valuation heavy selling was seen on the counters.

Furthermore, the BSE and NSE have placed Swan Energy's securities under the long-term Additional Surveillance Measure (ASM) framework.

Exchanges implement the ASM framework to caution investors about high volatility in share prices, particularly as the company has been in the oversold zone in recent days.

What Next?

Swan Energy has announced its intensified efforts towards the restoration of its shipyard.

The focus is on various activities such as dredging, reinstating licences and certifications, implementing industry-standard safety measures, and upgrading basic utilities.

To expedite the turnaround process, the company has engaged a leading global consulting firm and recruited top industry talent. The goal is to commence commercial operations at the facility by June 2024.

Additionally, Swan Energy aims to become a zero-debt company in the future. Moreover, given the modest expected growth rate of 4% annually in the global textile industry, Indian textile companies like Swan Energy are anticipated to benefit from this trend.

How Shares of Swan Energy have Performed Recently

Swan Energy share price is up 10% today. Over five days, the shares are trading lower by 25%.

The company touched its 52-week high of Rs 782 on 27 February 2024 and its 52-week low of Rs 192 on 28 March 2023.

About Swan Energy

Swan Energy is an India-based company engaged in the textile, real estate, energy, and petrochemical sectors.

Its segments include textile, energy, construction/others, distribution & development, warehousing, manufacturing, and power generation.

The project comprises the development of LNG port facilities utilizing a floating, storage, and regasification unit (FSRU) for LNG receipt, storage, regasification, and send-out.

It is also engaged in dyeing and printing a range of fabrics, including cotton, cotton blend fabrics like polyester cotton, linen and viscose fabrics with Lycra and non-Lycra options.

For more details, see the Swan Energy company fact sheet and quarterly results on our website.

You can also compare Swan Energy with its peers.

Swan Energy vs Akshar Spintex

Swan Energy vs Axita Cotton

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...