Quality Assessment: Mixed Signals Amidst Financial Struggles
Arihant Capital’s quality rating remains subdued, reflecting persistent challenges in its recent financial performance. The company has reported negative results for five consecutive quarters, with the latest quarter (Q3 FY25-26) showing a sharp 52.1% decline in PAT to ₹5.18 crores compared to the previous four-quarter average. Net sales for the nine-month period have contracted by 21.98% to ₹156.80 crores, while PBDIT has hit a low of ₹13.93 crores. These figures underscore ongoing operational difficulties and pressure on profitability.
Despite these setbacks, Arihant Capital maintains a strong long-term fundamental base, with an average Return on Equity (ROE) of 17.29% over the years. The latest ROE stands at 10.43%, which, while lower than historical averages, still indicates a degree of operational efficiency. Return on Capital Employed (ROCE) is robust at 36.64%, signalling effective capital utilisation. However, the recent financial trend remains negative, warranting caution among investors.
Valuation Upgrade: From Attractive to Very Attractive
The most significant driver behind the rating upgrade is the marked improvement in valuation metrics. Arihant Capital’s valuation grade has been upgraded from attractive to very attractive, reflecting its current trading multiples relative to peers and historical levels. The stock trades at a Price-to-Earnings (PE) ratio of 21.03, which is reasonable compared to other capital markets peers such as Mufin Green (PE 110.82) and Ashika Credit (PE 170.6).
Other valuation multiples further support this view: Price to Book Value stands at 1.96, EV to EBIT at 8.47, EV to EBITDA at 8.08, and EV to Sales at 2.95. These figures indicate that Arihant Capital is trading at a discount relative to many of its sector counterparts, some of which are classified as very expensive or risky. The PEG ratio is 0.00, suggesting that the stock’s price is not overvalued relative to its earnings growth potential.
This valuation attractiveness is particularly notable given the company’s current price of ₹77.70, which is closer to its 52-week low of ₹56.31 than the 52-week high of ₹120.35. The discount to peers and historical valuations has been a key factor in the upgrade decision.
This week's revealed pick, a Large Cap from Public Banks with TARGET PRICE, is already showing movement! Get the complete analysis before it's too late.
- - Target price included
- - Early movement detected
- - Complete analysis ready
Financial Trend: Persistent Weakness Despite Long-Term Strength
The financial trend for Arihant Capital remains negative in the short term. The company’s profits have fallen by 47.2% over the past year, and quarterly results continue to disappoint. The negative trajectory in PAT and sales growth has been a drag on investor sentiment, reflected in the stock’s underperformance relative to the broader market.
Over the last one year, Arihant Capital’s stock has declined by 5.20%, while the Sensex has gained 10.41%. The divergence is even starker over shorter periods, with the stock falling 15.13% in the last month compared to a 0.79% gain in the Sensex. This underperformance highlights the challenges the company faces in regaining investor confidence amid weak earnings momentum.
Moreover, domestic mutual funds hold no stake in Arihant Capital, signalling a lack of institutional conviction. Given their capacity for in-depth research, this absence may indicate concerns about the company’s business model or valuation at current levels.
Technicals: Modest Downside Pressure Amid Volatility
From a technical perspective, Arihant Capital’s stock price has shown volatility within a range defined by a 52-week high of ₹120.35 and a low of ₹56.31. The current price of ₹77.70 is closer to the lower end of this range, suggesting limited upside in the near term without a catalyst for earnings recovery.
On 12 Feb 2026, the stock declined by 0.77% to close near its day’s low of ₹76.65, indicating some selling pressure. The lack of strong technical momentum, combined with weak financial results, suggests that the stock may continue to face resistance until there is a clear turnaround in fundamentals.
However, the improved valuation metrics may provide a floor for the stock, limiting further downside and justifying the upgrade from Strong Sell to Sell.
Considering Arihant Capital Markets Ltd? Wait! SwitchER has found potentially better options in Capital Markets and beyond. Compare this micro-cap with top-rated alternatives now!
- - Better options discovered
- - Capital Markets + beyond scope
- - Top-rated alternatives ready
Comparative Industry Context and Market Position
Within the capital markets sector, Arihant Capital’s valuation stands out as very attractive compared to peers. For instance, Mufin Green and Ashika Credit are trading at significantly higher PE ratios of 110.82 and 170.6 respectively, while others like Satin Creditcare and SMC Global Securities are rated attractive but with higher EV to EBITDA multiples.
This relative valuation advantage is a key factor in the rating upgrade, suggesting that Arihant Capital may offer better value for investors willing to tolerate near-term earnings volatility. The company’s market capitalisation grade is 4, indicating a mid-sized presence in the sector, but its lack of institutional ownership and recent financial setbacks temper enthusiasm.
Long-Term Performance: Strong Returns Despite Recent Setbacks
Looking beyond the immediate challenges, Arihant Capital has delivered impressive long-term returns. Over five years, the stock has generated a cumulative return of 358.68%, vastly outperforming the Sensex’s 63.46% gain. Over ten years, the return is an extraordinary 1867.09%, compared to the Sensex’s 267.00%.
This long-term track record reflects the company’s underlying strength and ability to create shareholder value over time. However, the recent negative financial trend and underperformance over the past year highlight the need for investors to carefully weigh valuation against operational risks.
Conclusion: Sell Rating Reflects Valuation Appeal Amid Financial Headwinds
The upgrade of Arihant Capital Markets Ltd’s investment rating from Strong Sell to Sell is primarily driven by a substantial improvement in valuation metrics, which now classify the stock as very attractive relative to peers. Despite ongoing financial challenges, including declining profits and sales, and a lack of institutional support, the stock’s discounted multiples provide a compelling entry point for investors with a higher risk tolerance.
However, the negative financial trend and technical weakness suggest that the stock may continue to face headwinds in the near term. Investors should monitor quarterly results closely for signs of recovery before considering a more bullish stance. For now, the Sell rating reflects a cautious optimism grounded in valuation rather than fundamental turnaround.
Upgrade at special rates, valid only for the next few days. Claim Your Special Rate →
