Arihant Capital Markets Ltd Downgraded to Strong Sell Amid Financial Weakness and Valuation Shifts

Valuation Upgrade Amidst Peer Comparison

The primary driver behind the recent rating adjustment is a notable improvement in Arihant Capital’s valuation metrics. The valuation grade was upgraded from “very attractive” to “attractive,” signalling a more favourable price level relative to earnings and book value. The company currently trades at a price-to-earnings (PE) ratio of 20.50, which is considerably lower than several peers such as Mufin Green (PE 102.07) and Arman Financial (PE 61.04), both classified as “very expensive.”

Other valuation multiples reinforce this positive shift: the enterprise value to EBITDA (EV/EBITDA) stands at 7.80, and the price-to-book (P/B) ratio is 1.91, indicating the stock is trading at a discount compared to its historical averages and sector benchmarks. Return on capital employed (ROCE) is robust at 36.64%, while return on equity (ROE) is moderate at 10.43%, supporting the valuation upgrade despite recent earnings weakness.

Financial Trend Deterioration Clouds Outlook

However, the valuation improvement is overshadowed by a sustained negative financial trend. Arihant Capital has reported losses in five consecutive quarters, with the latest quarter’s profit after tax (PAT) plunging 52.1% to ₹5.18 crores compared to the previous four-quarter average. Net sales for the nine months ended December 2025 declined by 21.98% to ₹156.80 crores, while profit before depreciation, interest, and taxes (PBDIT) hit a low of ₹13.93 crores in the latest quarter.

This persistent underperformance has eroded investor confidence, reflected in the stock’s underwhelming returns. Over the past year, Arihant Capital’s share price has barely moved, delivering a marginal 0.03% return, starkly lagging the BSE500 index’s 13.53% gain. The company’s long-term returns remain impressive, with a 10-year return of 1,738.59%, but recent quarters have clearly dented momentum.

Quality Assessment and Market Position

Despite the recent financial setbacks, Arihant Capital maintains a strong fundamental quality profile. The company’s average ROE over the long term is 17.29%, indicating efficient capital utilisation historically. However, the latest ROE of 10.43% reflects a decline, consistent with the recent earnings slump. The company’s market capitalisation grade remains modest at 4, reflecting its mid-cap status within the capital markets sector.

Notably, domestic mutual funds hold no stake in Arihant Capital, a signal that institutional investors may be cautious due to the company’s recent performance and valuation uncertainties. This absence of significant institutional backing could limit liquidity and investor interest in the near term.

Technical Indicators and Price Movement

From a technical perspective, Arihant Capital’s share price has shown limited upward momentum. The stock closed at ₹75.75 on 18 Feb 2026, up 1.36% from the previous close of ₹74.73. The 52-week trading range spans from ₹56.31 to ₹120.35, indicating considerable volatility. The current price remains closer to the lower end of this range, suggesting limited recovery from recent lows.

Short-term price action has been weak, with the stock declining 3.26% over the past week and 13.64% over the last month, both underperforming the Sensex’s respective declines of 0.98% and 0.14%. This technical weakness, combined with poor financial results, has contributed to the downgrade to a Strong Sell rating.

Summary of Rating Change Drivers

The upgrade in valuation grade from “very attractive” to “attractive” was the sole positive catalyst in the recent rating revision. This improvement reflects a more reasonable pricing relative to earnings and book value, supported by strong ROCE and moderate ROE. However, the company’s financial trend remains deeply negative, with consecutive quarterly losses, declining sales, and shrinking profits undermining confidence.

Technically, the stock’s weak price momentum and underperformance relative to the broader market have further pressured the rating. The quality assessment, while historically strong, is currently tempered by recent earnings deterioration and lack of institutional support.

Consequently, the overall Mojo Score stands at 28.0, with the Mojo Grade downgraded to Strong Sell from Sell as of 17 Feb 2026. This rating reflects a cautious stance given the mixed signals: attractive valuation metrics are insufficient to offset the persistent financial and technical weaknesses.

Investor Takeaway

Investors should approach Arihant Capital Markets Ltd with caution. While the stock’s valuation appears appealing compared to peers, the company’s ongoing negative earnings trend and lack of institutional backing present significant risks. The stock’s underperformance over the past year relative to the Sensex and BSE500 indices further emphasises the challenges ahead.

Long-term investors may find value in the company’s strong historical returns and capital efficiency, but near-term headwinds suggest limited upside. Monitoring upcoming quarterly results and any shifts in institutional interest will be critical for reassessing the stock’s outlook.

Comparative Valuation Snapshot

Among its peers in the capital markets sector, Arihant Capital’s valuation metrics stand out as relatively attractive. For instance, Satin Creditcare trades at a PE of 8.88 and EV/EBITDA of 6.07, while SMC Global Securities has a PE of 20.53 but a lower EV/EBITDA of 4.09. In contrast, companies like Ashika Credit and Mufin Green are classified as “very expensive” with PE ratios exceeding 100 and EV/EBITDA multiples above 20.

This comparative context highlights Arihant Capital’s potential value proposition, albeit tempered by its recent financial struggles.

Outlook and Conclusion

In conclusion, the recent rating downgrade to Strong Sell for Arihant Capital Markets Ltd reflects a nuanced assessment balancing improved valuation against deteriorating financial health and weak technical momentum. Investors should weigh the company’s attractive pricing against the risks posed by ongoing losses and market underperformance.

Given the current landscape, a cautious approach is warranted, with a focus on monitoring financial recovery and market sentiment before considering any position increase.

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