Gujarat Natural Resources Ltd Upgraded to Hold on Improved Technicals and Financial Momentum

Technical Trends Shift to Bullish Territory

The primary catalyst for the rating upgrade is the marked improvement in the company’s technical profile. The technical grade has shifted from mildly bullish to bullish, signalling stronger momentum in the stock price movement. Key technical indicators underpinning this shift include a bullish Moving Average Convergence Divergence (MACD) on both weekly and monthly charts, which suggests sustained upward momentum.

Additionally, the daily moving averages have turned bullish, reinforcing short-term positive price action. Bollinger Bands on weekly and monthly timeframes remain mildly bullish, indicating moderate volatility with an upward bias. While the Know Sure Thing (KST) indicator shows a mildly bearish signal on the weekly chart, it remains bullish monthly, suggesting some short-term caution but overall positive medium-term momentum.

Other technical signals such as the Dow Theory indicate a mildly bullish trend weekly, though no clear trend is established monthly. The Relative Strength Index (RSI) remains neutral on both weekly and monthly scales, implying the stock is neither overbought nor oversold. Collectively, these technical factors have improved the stock’s outlook, justifying the upgrade in the technical grade and contributing significantly to the overall Mojo Score improvement to 56.0.

Robust Financial Performance Bolsters Confidence

Financially, Gujarat Natural Resources Ltd has demonstrated very positive results in the third quarter of FY25-26, which have reinforced investor confidence. The company reported an extraordinary 2,427.27% growth in operating profit for the quarter ended December 2025, a dramatic turnaround that follows positive results in the preceding quarter as well.

Net sales for the latest six months stood at ₹15.97 crores, reflecting a strong growth rate of 71.54%. Profit before tax excluding other income (PBT less OI) rose by 161.57% to ₹1.65 crores, while profit after tax (PAT) surged by 218.5% to ₹3.07 crores. These figures highlight a significant operational improvement and enhanced profitability, which have been key contributors to the revised investment rating.

Despite these gains, the company’s long-term fundamental strength remains weak. The average Return on Capital Employed (ROCE) is effectively zero, and the company’s ability to service debt is poor, with an average EBIT to interest ratio of -1.65. Operating profit growth over the past five years has been modest at an annualised rate of 19.85%, indicating that the recent surge may be more cyclical than structural.

Valuation Remains Expensive Despite Growth

On the valuation front, Gujarat Natural Resources Ltd is considered very expensive relative to its fundamentals. The stock trades at a price-to-book (P/B) ratio of 7.3, significantly higher than the average for its peers in the oil exploration and refinery sector. This premium valuation is partly justified by the company’s recent profit growth of 244.4% over the past year and a PEG ratio of 0.7, which suggests that earnings growth is somewhat priced in.

However, the company’s return on equity (ROE) remains low at 0.9%, indicating limited efficiency in generating shareholder returns. The high valuation multiple, combined with weak long-term fundamentals, suggests that investors are pricing in expectations of continued strong performance, which carries inherent risks if growth falters.

Interestingly, domestic mutual funds hold no stake in Gujarat Natural Resources Ltd, which may reflect caution among institutional investors regarding the company’s valuation or business prospects. Given that mutual funds typically conduct thorough on-the-ground research, their absence could signal concerns about sustainability or price levels.

Market Performance Outpaces Benchmarks

Despite valuation concerns, the stock has delivered exceptional market-beating returns over multiple time horizons. Over the last year, Gujarat Natural Resources Ltd has generated a staggering 426.15% return, vastly outperforming the Sensex’s 10.44% gain. Over three years, the stock’s return of 835.15% dwarfs the Sensex’s 38.28%, and even over five years, the company has delivered 648.02% compared to the benchmark’s 61.92%.

More recently, the stock has posted a 9.51% gain over the past month and a 15.95% return year-to-date, both significantly ahead of the Sensex’s modest positive returns. These figures underscore the stock’s strong momentum and justify the technical upgrade, even as the company navigates fundamental challenges.

Summary of Rating Change and Outlook

The upgrade of Gujarat Natural Resources Ltd’s Mojo Grade from Sell to Hold reflects a balanced assessment of four key parameters: quality, valuation, financial trend, and technicals. The company’s quality rating remains constrained by weak long-term fundamentals, including negligible ROCE and poor debt servicing capacity. Valuation is expensive, with a high P/B ratio and low ROE, though recent profit growth tempers some concerns.

Financial trends have improved markedly, with exceptional quarterly earnings growth and positive sales momentum, signalling a potential turnaround. Most notably, technical indicators have shifted decisively into bullish territory, providing a strong near-term signal for investors. The combined effect of these factors has lifted the overall Mojo Score to 56.0, warranting a Hold rating.

Investors should remain cautious given the company’s fundamental weaknesses and premium valuation, but the recent performance and technical strength suggest that Gujarat Natural Resources Ltd may be stabilising after a period of underperformance. Continued monitoring of quarterly results and technical signals will be essential to reassess the stock’s trajectory in coming months.

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