C J Gelatine Products Ltd Upgraded to Sell on Improved Technicals and Valuation

Technical Trends Shift to Sideways Momentum

The primary catalyst for the upgrade lies in the company’s technical grade, which has improved from mildly bearish to sideways. This change is underpinned by a mixed but generally more positive technical indicator profile. On a weekly basis, the Moving Average Convergence Divergence (MACD) is mildly bullish, signalling potential momentum building. Similarly, the monthly MACD also reflects mild bullishness, suggesting that longer-term momentum may be stabilising.

The Relative Strength Index (RSI) presents a more optimistic picture on the monthly chart, showing a bullish signal, although the weekly RSI remains neutral with no clear directional indication. Bollinger Bands analysis reveals a bullish stance weekly, but a mildly bearish tone monthly, indicating some volatility and uncertainty in price movements.

Other technical indicators such as the Know Sure Thing (KST) oscillator show bullishness on a weekly basis but bearishness monthly, while Dow Theory assessments align with a mildly bullish weekly trend contrasted by a mildly bearish monthly trend. Daily moving averages remain mildly bearish, reflecting short-term caution among traders.

Overall, these mixed signals have led to a more balanced technical outlook, moving away from outright bearishness to a sideways trend, which has contributed significantly to the upgrade in the technical grade.

Valuation Improves to Attractive from Fair

Alongside technical improvements, the valuation grade for C J Gelatine has been upgraded from fair to attractive. This shift is notable given the company’s current price-to-earnings (PE) ratio of 140.95, which is high in absolute terms but comparatively attractive within its peer group. For context, competitors such as Sanstar and Stallion India trade at PE ratios of 82.04 and 45.15 respectively, with Sanstar classified as very expensive and Stallion India as expensive.

Enterprise value to EBITDA (EV/EBITDA) stands at 15.81, which, while elevated, is lower than some peers like Sanstar at 81.63 and Stallion India at 28.87, supporting the view that C J Gelatine’s valuation is relatively more reasonable. The company’s EV to capital employed ratio is a modest 1.17, further underscoring the attractive valuation thesis.

However, profitability metrics remain subdued, with a return on capital employed (ROCE) of 4.14% and return on equity (ROE) of just 1.44%. These figures highlight limited efficiency in generating returns from capital and shareholders’ funds, which tempers enthusiasm despite the valuation appeal.

Financial Trend Remains Flat with Lingering Concerns

Despite the upgrade in technical and valuation grades, the financial trend for C J Gelatine remains flat and somewhat concerning. The company reported flat financial performance in the third quarter of fiscal year 2025-26, with operating profit growth declining at an annualised rate of -10.47% over the past five years. This negative growth trajectory signals challenges in expanding profitability.

Moreover, the company carries a high debt burden, with a debt-to-equity ratio of 5.01 times, indicating significant leverage risk. The average debt-to-equity ratio over recent years is 2.37 times, reinforcing the company’s status as a highly leveraged entity. This elevated debt level contributes to weak long-term fundamental strength and increases financial vulnerability.

Returns to shareholders have also been disappointing. The average ROE over recent years is 7.51%, reflecting low profitability per unit of shareholder equity. Additionally, the stock has underperformed the benchmark indices consistently, delivering a negative 20.14% return over the last year compared to a positive 7.97% return for the Sensex. Over three and five years, the stock’s returns of -33.45% and 46.66% respectively lag behind the Sensex’s 38.25% and 63.78% gains.

Stock Price and Market Performance

On 10 February 2026, C J Gelatine’s stock closed at ₹17.57, up 4.96% from the previous close of ₹16.74. The stock’s 52-week high and low stand at ₹22.25 and ₹13.91 respectively, indicating a moderate recovery from its lows. Notably, the stock outperformed the Sensex over the past week with a 26.31% gain versus the benchmark’s 2.94%, though it has lagged over the one-month and longer-term periods.

Despite recent price gains, the company’s earnings have declined sharply, with profits falling by 41% over the past year. This disconnect between price movement and earnings performance suggests cautious investor sentiment and potential volatility ahead.

Quality Assessment Remains Weak Amid High Leverage

The company’s quality grade remains poor, reflecting its weak fundamental strength. High leverage, as evidenced by the debt-to-equity ratio of 5.01 times, poses significant financial risk. This is compounded by the company’s inability to generate robust returns on equity and capital employed. The flat financial trend and negative operating profit growth over five years further highlight structural challenges in the business model.

Promoters remain the majority shareholders, which may provide some stability in ownership, but does not mitigate the operational and financial risks inherent in the company’s current profile.

Summary and Outlook

The upgrade of C J Gelatine Products Ltd’s investment rating from Strong Sell to Sell is primarily driven by an improved technical outlook and a more attractive valuation relative to peers. Technical indicators have shifted from bearish to sideways, suggesting a stabilisation in price momentum. Valuation metrics, while still reflecting a high PE ratio, are comparatively attractive within the specialty chemicals sector, supported by reasonable EV/EBITDA and EV to capital employed ratios.

However, fundamental concerns remain significant. The company’s high debt levels, flat financial performance, and poor profitability metrics continue to weigh on its long-term prospects. The stock’s consistent underperformance against benchmark indices over multiple time horizons further underscores these challenges.

Investors should weigh the improved technical and valuation signals against the persistent fundamental weaknesses before considering exposure to C J Gelatine. The current Sell rating reflects this balanced view, signalling caution but recognising potential for recovery should operational and financial conditions improve.

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