Technical Analysis: From Mildly Bearish to Bearish
The primary catalyst for the downgrade lies in the technical trend, which has shifted from mildly bearish to outright bearish. Key technical indicators paint a cautious picture for Agarwal Industrial Corporation Ltd’s near-term price movement. The Moving Average Convergence Divergence (MACD) shows a weekly mildly bullish signal but remains bearish on the monthly chart, indicating short-term attempts at recovery overshadowed by longer-term weakness.
Further, the Relative Strength Index (RSI) offers no clear signal on both weekly and monthly timeframes, suggesting a lack of momentum. Bollinger Bands reinforce the bearish stance, with both weekly and monthly readings signalling downward pressure. Daily moving averages are firmly bearish, while the Know Sure Thing (KST) oscillator confirms bearish trends on weekly and monthly scales.
Dow Theory presents a mixed view: mildly bullish on the weekly but mildly bearish monthly, reflecting short-term volatility amid a longer-term downtrend. On-Balance Volume (OBV) is mildly bearish weekly and neutral monthly, indicating subdued buying interest. These technical factors collectively justify the downgrade in technical grade, signalling increased downside risk for the stock.
Valuation: Upgraded to Very Attractive
Contrasting the technical weakness, Agarwal Industrial Corporation Ltd’s valuation grade has improved from attractive to very attractive. The stock currently trades at a price of ₹705.25, down from the previous close of ₹723.35, and well below its 52-week high of ₹1,129.70. Key valuation metrics support this upgrade:
- Price-to-Earnings (PE) ratio stands at a modest 12.67, indicating undervaluation relative to earnings potential.
- Price-to-Book (P/B) ratio is 1.61, suggesting the stock is reasonably priced against its net asset value.
- Enterprise Value to EBITDA (EV/EBITDA) ratio is 8.13, below typical sector averages, signalling cost-effective acquisition value.
- Return on Capital Employed (ROCE) is 11.92%, reflecting efficient use of capital despite recent financial setbacks.
These valuation metrics, combined with a PEG ratio of zero and a dividend yield of 0.47%, position the stock attractively for value investors willing to tolerate near-term volatility.
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Financial Trend: Negative Quarterly Performance and Declining Profitability
Despite the attractive valuation, Agarwal Industrial Corporation Ltd’s recent financial performance has been disappointing. The company reported very negative results for Q2 FY25-26, with earnings per share (EPS) falling by 7.98%. Profit after tax (PAT) for the quarter stood at ₹11.99 crores, a sharp decline of 46.5% compared to the previous four-quarter average.
This marks the second consecutive quarter of negative results, raising concerns about the company’s near-term earnings trajectory. Return on Capital Employed (ROCE) for the half-year is at a low 12.30%, while the operating profit to interest coverage ratio has dropped to 4.12 times, signalling reduced ability to service debt from operating profits.
Institutional investors have responded by trimming their holdings, with a 0.87% reduction in stake over the previous quarter. Currently, institutional ownership stands at 5.05%, reflecting waning confidence among sophisticated market participants.
Long-term returns also paint a mixed picture. While the stock has delivered a remarkable 409.02% return over five years and 370.79% over ten years, it has underperformed the Sensex significantly in the last year, with a negative 36.10% return compared to the Sensex’s 7.07% gain. Year-to-date and one-month returns are also subdued, underscoring recent weakness.
Technical and Financial Underperformance Relative to Sector
Agarwal Industrial Corporation Ltd is the largest company in the petrochemicals sector by market capitalisation, valued at ₹1,055 crores and representing 17.19% of the sector. Its annual sales of ₹2,203.96 crores account for 32.43% of the industry’s total revenue, highlighting its significant market presence.
However, the stock’s underperformance relative to the BSE500 index and sector peers over the past three years and one year raises caution. The company’s net sales have grown at a healthy annual rate of 25.24%, but profitability has not kept pace, with profits falling by 32.4% over the last year.
On a positive note, the company maintains a strong debt servicing ability, with a low Debt to EBITDA ratio of 1.26 times, which mitigates some financial risk. Nevertheless, the combination of weak recent earnings, bearish technicals, and declining institutional interest has led to the downgrade to a Strong Sell rating.
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Summary and Outlook
The downgrade of Agarwal Industrial Corporation Ltd’s investment rating to Strong Sell reflects a confluence of factors. Technical indicators have deteriorated, signalling increased downside risk in the stock price. Financial results have been weak, with consecutive quarters of declining profitability and reduced institutional confidence. Although valuation metrics are very attractive, suggesting potential value for long-term investors, the near-term risks remain elevated.
Investors should weigh the company’s strong market position and healthy sales growth against its recent earnings volatility and bearish technical signals. The stock’s underperformance relative to the broader market and sector peers further emphasises the need for caution. Until Agarwal Industrial Corporation Ltd demonstrates a sustained turnaround in financial performance and technical momentum, the Strong Sell rating is likely to remain appropriate.
Key Metrics at a Glance:
- Mojo Score: 29.0 (Strong Sell, downgraded from Sell)
- Current Price: ₹705.25 (down 2.50% on the day)
- 52-Week Range: ₹647.70 – ₹1,129.70
- PE Ratio: 12.67
- ROCE: 11.92%
- EPS Decline (Q2 FY25-26): -7.98%
- PAT Decline (Quarterly): -46.5%
- Debt to EBITDA: 1.26 times
- Institutional Holding: 5.05% (down 0.87% QoQ)
Given these dynamics, investors are advised to monitor the company’s upcoming quarterly results and technical developments closely before considering any position in Agarwal Industrial Corporation Ltd.
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