Diligent Industries Ltd Upgraded to Hold on Technical and Valuation Improvements

Technical Trends Spark Upgrade

The primary catalyst for the rating change was a notable improvement in the technical outlook. The technical grade shifted from a sideways trend to a mildly bullish stance, supported by several key indicators. On a daily basis, moving averages have turned bullish, signalling positive momentum in the short term. Meanwhile, monthly indicators such as the MACD and KST oscillators have moved to mildly bullish territory, suggesting a potential uptrend over the medium term.

However, weekly technicals remain somewhat mixed, with MACD and KST still mildly bearish and Bollinger Bands indicating sideways movement. The Relative Strength Index (RSI) on both weekly and monthly charts shows no clear signal, reflecting a market that is cautiously optimistic but not yet decisively bullish. Overall, these technical nuances underpin the cautious upgrade to Hold rather than a more aggressive Buy rating.

Price action has been encouraging, with the stock closing at ₹2.90 on 14 January 2026, up from a previous close of ₹2.71. The intraday high reached ₹3.00, approaching the 52-week high of ₹3.95, while the 52-week low stands at ₹1.45. This price recovery aligns with the improved technical sentiment and supports the revised outlook.

Valuation Remains Attractive Despite Mixed Financials

Diligent Industries’ valuation metrics have also contributed to the upgrade. The company currently trades at an enterprise value to capital employed (EV/CE) ratio of approximately 1.0, which is considered attractive relative to its sector peers. This discount to historical averages suggests potential upside if operational performance improves.

Return on Capital Employed (ROCE) stands at 6.1% for the latest quarter, a modest improvement over the long-term average of 4.34%. While this remains below the levels typically favoured by growth investors, it indicates a stabilisation in capital efficiency. The company’s net sales for Q2 FY25-26 rose sharply by 50.92% to ₹45.73 crores, signalling robust top-line growth in the near term.

However, profitability remains a concern. Over the past year, profits have declined by 15.2%, reflecting margin pressures or increased costs. The operating profit growth rate over the last five years has averaged 16.43% annually, which is moderate but not exceptional. Additionally, the company’s debt servicing ability is weak, with a high Debt to EBITDA ratio of 10.97 times, indicating elevated leverage risk.

Financial Trend: Positive Quarterly Results but Long-Term Challenges

While the recent quarterly results have been encouraging, the longer-term financial trend remains mixed. The company’s stock has generated a 9.02% return over the past year, closely tracking the Sensex’s 9.56% gain. However, over three years, the stock has underperformed significantly, with a cumulative loss of 65.83% compared to the Sensex’s 38.78% gain. Over a decade, the stock has declined by 16.82%, while the Sensex has surged 236.47%.

This disparity highlights the company’s struggles to sustain growth and profitability over the long term. The average ROCE of 4.34% and the high leverage ratio underscore structural weaknesses that investors should monitor closely. The majority shareholding by promoters provides some stability but also concentrates risk.

Technical and Market Performance Summary

In the short term, Diligent Industries has outperformed the Sensex, with weekly returns of 3.20% versus the Sensex’s -1.69%, and monthly returns of 7.41% compared to -1.92% for the benchmark. Year-to-date, however, the stock has declined 5.84%, slightly worse than the Sensex’s 1.87% fall. These mixed signals reflect a market still weighing the company’s prospects amid sector volatility.

Summary: Hold Rating Reflects Balanced Outlook

The upgrade to a Hold rating with a Mojo Score of 50.0 reflects a balanced view of Diligent Industries Ltd’s prospects. The technical indicators have improved sufficiently to suggest a mild bullish trend, while valuation metrics indicate the stock is trading at a discount relative to peers. Positive quarterly sales growth and a modestly improved ROCE provide some fundamental support.

Nevertheless, the company’s long-term financial challenges, including weak profitability trends, high leverage, and underperformance relative to the broader market over multiple years, temper enthusiasm. Investors are advised to monitor upcoming quarterly results and debt metrics closely before considering a more aggressive stance.

With a market capitalisation grade of 4 and a sector focus on edible oil, Diligent Industries remains a stock for cautious investors who favour technical momentum combined with value opportunities but are wary of structural risks.

Outlook and Investor Considerations

Looking ahead, the company’s ability to sustain sales growth and improve profitability will be critical to upgrading the rating further. The mildly bullish monthly technicals suggest potential for price appreciation, but weekly bearish signals indicate short-term volatility may persist. The stock’s proximity to its 52-week high of ₹3.95 offers upside potential, but investors should be mindful of the company’s debt burden and historical earnings volatility.

Given these factors, the Hold rating is appropriate for investors seeking exposure to the edible oil sector with a moderate risk appetite. Those prioritising stronger financial health and consistent earnings growth may prefer to explore alternative stocks with more robust fundamentals.

Unlock special upgrade rates for a limited period. Start Saving Now →