Diligent Industries Ltd Upgraded to Hold on Technical and Valuation Improvements

Quality Assessment: Mixed Fundamentals Temper Enthusiasm

Diligent Industries continues to exhibit a mixed fundamental profile. The company’s Return on Capital Employed (ROCE) stands at a modest 6.1% for the latest period, which is an improvement over its long-term average of 4.34%. This suggests some enhancement in capital efficiency, though it remains below the levels typically favoured by investors seeking robust quality metrics.

Financially, the company reported net sales of ₹139.24 crores for the nine months ending September 2025, marking a healthy growth rate of 24.61%. However, profitability has been under pressure, with profits declining by 15.2% over the past year. Operating profit growth over the last five years has averaged 16.43% annually, indicating moderate expansion but not enough to offset concerns about earnings volatility.

Debt servicing remains a significant concern, with a high Debt to EBITDA ratio of 10.97 times, signalling elevated leverage and potential liquidity risks. This weakens the company’s fundamental strength and limits its ability to capitalise on growth opportunities without incurring additional financial strain.

Valuation: Attractive Discount Amidst Sector Peers

From a valuation standpoint, Diligent Industries presents an attractive proposition. The stock trades at an Enterprise Value to Capital Employed ratio of 1.1, which is below the average historical valuations of its peers in the edible oil sector. This discount suggests that the market is pricing in the company’s challenges but also leaves room for upside should operational improvements materialise.

Despite the stock’s underperformance relative to the Sensex and BSE500 indices—returning -5.81% over the past year compared to the Sensex’s 9.06% gain—the valuation gap may entice value-oriented investors looking for turnaround potential. The current market capitalisation grade of 4 reflects a mid-tier size, which may limit liquidity but also offers niche opportunities for patient investors.

Financial Trend: Positive Quarterly Performance Amidst Long-Term Challenges

The company’s recent quarterly results for Q2 FY25-26 have been encouraging, with net sales growth of 24.61% over nine months signalling operational momentum. However, the longer-term financial trend remains subdued. Over the past year, profits have declined by 15.2%, and the stock has underperformed the benchmark indices consistently over the last three years.

While the company’s operating profit has grown at a compound annual rate of 16.43% over five years, this has not translated into commensurate returns for shareholders, as evidenced by a 65.33% decline in stock returns over three years compared to a 40.07% gain in the Sensex. This disparity highlights the need for cautious optimism when considering the stock’s prospects.

Technical Analysis: Shift to Mildly Bullish Momentum Spurs Upgrade

The most significant driver behind the upgrade to Hold is the improvement in technical indicators. The technical trend has shifted from sideways to mildly bullish, supported by several key signals:

• Moving averages on the daily chart are bullish, indicating positive short-term momentum.


• Bollinger Bands on the weekly chart show a bullish pattern, although the monthly view remains mildly bearish.


• MACD readings are mixed, mildly bearish on the weekly timeframe but mildly bullish monthly, suggesting a potential turning point.


• Dow Theory on the weekly chart is mildly bullish, while the monthly chart shows no clear trend.

These technical signals, combined with a 15.79% day change and a current price of ₹3.08 (up from ₹2.66 previously), reflect renewed investor interest and a possible inflection in price momentum. The stock’s 52-week high stands at ₹3.95, with a low of ₹1.45, indicating significant volatility but also room for recovery.

Comparative Performance: Underperformance Against Benchmarks

Despite recent technical improvements, Diligent Industries has struggled to keep pace with broader market indices. The stock’s one-week return of 12.00% notably outperformed the Sensex’s -0.22% over the same period, and its one-month return of 13.24% also surpassed the Sensex’s -0.49%. However, year-to-date and one-year returns remain negative at -5.81%, while the Sensex gained 9.06% in these periods.

Over longer horizons, the stock’s performance has been disappointing. It has lost 65.33% over three years compared to a 40.07% gain in the Sensex and delivered a negligible 0.24% return over ten years versus the Sensex’s 226.30% surge. This persistent underperformance underscores the challenges facing the company despite recent positive developments.

Shareholding and Sector Context

The majority shareholding remains with promoters, which can provide stability but also concentrates control. Operating within the edible oil sector, Diligent Industries faces competitive pressures and commodity price volatility that impact margins and growth prospects.

Its current Mojo Score of 50.0 and Mojo Grade of Hold reflect a balanced view, acknowledging both the technical momentum and valuation appeal against the backdrop of fundamental weaknesses and market underperformance.

Outlook and Investor Considerations

Investors should weigh the recent technical upgrade and valuation discount against the company’s weak long-term fundamentals and high leverage. The Hold rating suggests a cautious stance, recognising potential for recovery but also signalling the need for further evidence of sustained financial improvement.

Given the mixed signals, Diligent Industries may appeal to investors with a higher risk tolerance who are looking for turnaround opportunities in the edible oil sector. However, those prioritising strong fundamentals and consistent growth may prefer to monitor the stock closely before committing.

Summary

Diligent Industries Ltd’s upgrade from Sell to Hold is primarily driven by a shift in technical indicators towards mild bullishness and an attractive valuation relative to peers. While recent quarterly sales growth is encouraging, profitability pressures and high debt levels remain concerns. The stock’s underperformance against benchmarks over multiple timeframes tempers enthusiasm, making the Hold rating a prudent reflection of the company’s current position.

Investors should continue to monitor quarterly financial results and technical trends to assess whether the company can sustain its momentum and improve its fundamental profile.

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