Exxaro Tiles Ltd Upgraded to Sell on Technical Improvement Despite Weak Fundamentals

Quality Assessment: Persistent Fundamental Challenges

Exxaro Tiles’ quality rating remains subdued, reflecting ongoing concerns about its long-term financial health and profitability. Over the past five years, the company has recorded a negative compound annual growth rate (CAGR) of -5.61% in operating profits, signalling a contraction in core earnings. This trend is compounded by a weak ability to service debt, with an average EBIT to interest coverage ratio of just 1.68 times, indicating limited buffer to meet interest obligations comfortably.

Return on equity (ROE) further underscores the company’s profitability challenges, averaging a mere 1.54%. Such a low ROE suggests that shareholders are receiving minimal returns relative to their invested capital, which is a critical factor for long-term investors assessing the company’s quality. The flat financial performance in Q3 FY25-26, with net sales declining by 7.7% to ₹71.11 crores and interest expenses rising sharply by 38.22% to ₹3.58 crores, reinforces the narrative of operational strain.

Valuation: Attractive Metrics Amidst Weak Returns

Despite fundamental weaknesses, Exxaro Tiles presents a compelling valuation case. The company’s return on capital employed (ROCE) stands at 5.4%, which, while modest, is paired with a very attractive enterprise value to capital employed ratio of 1.2. This suggests the stock is trading at a discount relative to the capital it employs, potentially offering value for investors willing to look beyond short-term earnings volatility.

Moreover, the stock’s price-to-earnings-growth (PEG) ratio is an exceptionally low 0.1, reflecting the market’s subdued expectations relative to the company’s profit growth, which has surged by 418.7% over the past year. However, this profit growth has not translated into share price appreciation, as the stock has declined by 7.53% over the last year, underperforming the BSE500 benchmark consistently over the past three years.

Financial Trend: Flat Quarter and Weak Profitability

The company’s recent quarterly results for Q3 FY25-26 were largely flat, with no significant improvement in core financial metrics. Operating profit margins remain under pressure, and the sharp increase in interest expenses has further squeezed profitability. The operating profit to interest ratio for the quarter dropped to a low of 1.89 times, highlighting the company’s limited capacity to cover interest costs from operating earnings.

Net sales have declined compared to the previous four-quarter average, signalling challenges in revenue generation. This weak financial trend is a key reason why the company’s overall Mojo Grade remains a Sell despite the upgrade from Strong Sell. Investors should note that the company’s long-term financial trajectory remains negative, with a five-year CAGR of operating profits at -5.61% and consistent underperformance against the Sensex and BSE500 indices.

Technical Analysis: Improvement Spurs Upgrade

The primary catalyst for the recent upgrade in Exxaro Tiles’ investment rating is the improvement in technical indicators. The technical grade has shifted from bearish to mildly bearish, reflecting a more constructive near-term outlook for the stock’s price action. Key technical signals include a mixed but improving picture across multiple timeframes and indicators.

On the weekly chart, the Moving Average Convergence Divergence (MACD) remains bearish, but the monthly MACD has improved to mildly bearish, suggesting a potential easing of downward momentum. The Relative Strength Index (RSI) shows no clear signal on both weekly and monthly charts, indicating a neutral momentum stance. Bollinger Bands remain mildly bearish on both weekly and monthly timeframes, but the trend is less severe than before.

Moving averages on the daily chart continue to signal bearishness, but the Know Sure Thing (KST) indicator has turned mildly bullish on the monthly scale, hinting at a possible positive shift in momentum. Dow Theory analysis shows a mildly bullish weekly trend, although the monthly trend remains mildly bearish. On-balance volume (OBV) is mildly bullish weekly but lacks a clear trend monthly, reflecting cautious accumulation by investors.

These mixed but improving technical signals have prompted the upgrade from Strong Sell to Sell, signalling that while caution remains warranted, the stock may be stabilising after a prolonged downtrend.

Stock Performance and Market Context

Exxaro Tiles’ stock price closed at ₹7.49 on 26 Feb 2026, up 1.90% from the previous close of ₹7.35. The stock’s 52-week high stands at ₹10.95, while the 52-week low is ₹5.22, indicating a wide trading range over the past year. Despite recent gains, the stock has underperformed the Sensex and broader market indices over multiple time horizons.

For instance, the stock delivered a 5.64% return over the past week compared to a -1.74% return for the Sensex, and a 3.88% return over the past month versus the Sensex’s 0.91%. However, year-to-date and longer-term returns remain negative, with a -7.19% return YTD and -7.53% over the last year, while the Sensex gained 10.29% in the same period. Over three years, the stock has declined by 35.15%, contrasting sharply with the Sensex’s 38.36% gain.

This persistent underperformance highlights the challenges faced by Exxaro Tiles in regaining investor confidence despite some recent technical improvements.

Shareholding and Industry Position

The majority of Exxaro Tiles’ shares are held by non-institutional investors, which may contribute to higher volatility and less predictable trading patterns. The company operates within the ceramics, marble, granite, and sanitaryware segment of the diversified consumer products sector, a space characterised by intense competition and sensitivity to economic cycles.

Given the company’s current financial and technical profile, investors should weigh the risks of continued fundamental weakness against the potential for technical recovery when considering exposure to this stock.

Conclusion: A Cautious Upgrade Reflecting Technical Stabilisation

Exxaro Tiles Ltd’s upgrade from Strong Sell to Sell reflects a cautious optimism driven by technical improvements rather than fundamental strength. While the company’s valuation metrics suggest some attractiveness, persistent weak financial trends and low profitability metrics temper enthusiasm. The stock’s recent price action and technical indicators point to a possible bottoming process, but investors should remain vigilant given the company’s ongoing operational challenges and underperformance relative to benchmarks.

Overall, the rating change signals a modest improvement in outlook but stops short of recommending a buy, underscoring the need for continued monitoring of both financial results and technical developments.

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