Dhampur Sugar Mills Ltd Upgraded to Hold Amid Mixed Financial and Technical Signals

Quality Assessment: Mixed Signals Amidst Financial Recovery

Dhampur Sugar’s quality rating remains cautious, reflecting a complex financial backdrop. The company reported a strong rebound in Q3 FY25-26, with Profit Before Tax excluding other income (PBT LESS OI) rising sharply by 95.0% to ₹31.08 crores compared to the previous four-quarter average. Net profit (PAT) also surged by 85.6% to ₹26.49 crores, signalling operational improvements after two consecutive quarters of negative results.

However, the long-term growth trajectory remains a concern. Over the past five years, net sales have contracted at an annualised rate of -12.84%, while operating profit declined by -17.80% annually. This persistent erosion in core revenue and profitability metrics tempers enthusiasm, despite the recent quarterly turnaround.

Return on Capital Employed (ROCE) stands at a moderate 8.2%, indicating reasonable efficiency in capital utilisation but not yet at levels that inspire a strong quality rating. The company’s low Debt to EBITDA ratio of 1.47 times underscores a robust ability to service debt, which is a positive credit quality indicator.

Valuation: Attractive Discounts Amidst Sector Peers

Dhampur Sugar’s valuation profile has improved, contributing to the upgrade. The stock trades at ₹116.80, down slightly from the previous close of ₹117.90, and significantly below its 52-week high of ₹161.95. Its Enterprise Value to Capital Employed ratio is a compelling 0.7, suggesting the stock is undervalued relative to the capital it employs.

Compared to peers in the sugar sector, Dhampur Sugar is trading at a discount to historical average valuations, which may appeal to value-oriented investors. The company’s Price/Earnings to Growth (PEG) ratio is a low 0.4, indicating that earnings growth is not fully priced into the stock. This valuation attractiveness is a key factor in the revised Hold rating, signalling potential upside if operational momentum sustains.

Financial Trend: Signs of Recovery but Long-Term Challenges Persist

The recent quarterly results mark a positive inflection point for Dhampur Sugar. After two quarters of negative earnings, the company’s Q3 FY25-26 performance demonstrates a meaningful recovery in profitability. The 95.0% growth in PBT LESS OI and 85.6% rise in PAT compared to the previous four-quarter average highlight operational improvements and cost management.

Nonetheless, the stock’s longer-term financial trend remains weak. Over the last year, Dhampur Sugar’s stock price has declined by 7.41%, underperforming the Sensex’s 10.22% gain. Over three and five years, the stock has generated negative returns of -45.94% and -30.62% respectively, while the Sensex posted gains of 37.26% and 63.15% over the same periods.

This consistent underperformance is compounded by a lack of confidence from domestic mutual funds, which currently hold no stake in the company. Given their capacity for in-depth research, this absence may reflect concerns about the company’s business model or valuation at current levels.

Technical Analysis: Shift from Bearish to Mildly Bearish Signals

The upgrade to Hold is largely driven by an improvement in technical indicators, which have shifted from a bearish to a mildly bearish stance. The MarketsMOJO Mojo Score now stands at 51.0, with the Mojo Grade upgraded from Sell to Hold as of 18 Feb 2026.

Weekly technical indicators present a mixed picture: the MACD remains bearish, but the monthly MACD has turned mildly bullish. Bollinger Bands are bearish on a weekly basis but only mildly bearish monthly. The KST indicator is bearish weekly but mildly bullish monthly, while Dow Theory readings show mild bullishness weekly and mild bearishness monthly. The On-Balance Volume (OBV) indicator also reflects this duality, mildly bullish weekly and mildly bearish monthly.

Daily moving averages remain bearish, indicating short-term caution. Overall, these technical signals suggest the stock is stabilising after a prolonged downtrend, but confirmation of a sustained uptrend is yet to materialise.

Price action remains subdued, with the stock trading near its 52-week low of ₹108.85 and well below its 52-week high of ₹161.95. Today’s trading range was narrow, between ₹116.30 and ₹118.35, closing at ₹116.80, down 0.93% on the day.

Comparative Performance and Market Context

Dhampur Sugar’s returns have lagged significantly behind the broader market benchmarks. Over the past week, the stock declined by 2.99%, compared to a modest 0.59% drop in the Sensex. Over one month, the stock marginally outperformed the Sensex with a 0.43% gain versus 0.20%, but this short-term strength is overshadowed by longer-term underperformance.

Year-to-date, the stock has lost 5.31%, while the Sensex is down 1.74%. Over one year, the divergence is stark: Dhampur Sugar’s -7.41% return contrasts with the Sensex’s 10.22% gain. The three- and five-year returns further highlight the stock’s struggles, with losses of -45.94% and -30.62% respectively, against Sensex gains of 37.26% and 63.15%. Even over a decade, Dhampur Sugar’s 108.94% return trails the Sensex’s 254.07% advance.

These figures underscore the challenges the company faces in regaining investor confidence and market share, despite pockets of operational improvement.

Conclusion: Hold Rating Reflects Balanced Outlook

The upgrade of Dhampur Sugar Mills Ltd to a Hold rating reflects a balanced assessment of recent positive developments against persistent structural challenges. Improved quarterly earnings, attractive valuation metrics, and a shift in technical indicators from bearish to mildly bearish provide reasons for cautious optimism.

However, long-term growth remains weak, and the stock’s consistent underperformance relative to benchmarks and sector peers tempers enthusiasm. The absence of domestic mutual fund participation further signals investor scepticism.

Investors are advised to monitor upcoming quarterly results and technical trends closely. Sustained improvement in financial performance and confirmation of a bullish technical trend would be necessary to consider a more positive rating upgrade in the future.

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