I G Petrochemicals Ltd Upgraded to Sell on Technical Improvements Despite Weak Financials

Quality Assessment: Financial Performance Remains Weak

The company’s quality rating remains under pressure due to its very negative financial results in the second quarter of fiscal year 2025-26. Operating profit declined sharply by 48.36%, marking the second consecutive quarter of negative earnings. Profit before tax excluding other income (PBT less OI) plunged by 152.5% to a loss of ₹6.99 crores, while net profit after tax (PAT) fell by 113.2% to a loss of ₹2.00 crores compared to the previous four-quarter average. These figures underscore a deteriorating profitability trend that has persisted over recent quarters.

Long-term growth metrics also paint a bleak picture. Operating profit has contracted at an annualised rate of -3.92% over the past five years, signalling structural challenges in expanding earnings. The company’s debtor turnover ratio for the half-year period stands at a low 0.69 times, indicating potential inefficiencies in receivables management and cash flow generation.

Despite these issues, I G Petrochemicals maintains a low average debt-to-equity ratio of 0.06 times, which provides some financial stability and limits leverage risk. However, this has not translated into improved returns, with the company’s return on capital employed (ROCE) at a modest 3.4%, reflecting limited capital efficiency.

Valuation: Attractive Yet Premium Compared to Peers

From a valuation standpoint, the stock trades at an enterprise value to capital employed ratio of 0.9, which is considered attractive in isolation. This suggests that the market values the company’s capital base reasonably, potentially reflecting its low leverage and asset base. However, the stock is trading at a premium relative to its peers’ historical valuations, which may be a concern given the company’s weak earnings trajectory.

Over the past year, the stock has delivered a negative return of -28.69%, underperforming the broader BSE500 index and the Sensex, which posted gains of 9.06% over the same period. This underperformance is compounded by a 40.9% decline in profits over the last year, highlighting the disconnect between valuation and earnings momentum.

Financial Trend: Negative Momentum Persists

The financial trend for I G Petrochemicals remains negative, with the company reporting losses in recent quarters and a declining operating profit over the medium term. The stock’s returns over various time frames illustrate this weakness: a 1-year and year-to-date return of -28.69%, a 3-year return of -22.74%, and a 5-year return of -5.94%, all significantly lagging the Sensex’s respective returns of 9.06%, 40.07%, and 78.47%. Even over a 10-year horizon, while the stock has delivered a strong cumulative return of 212.36%, it still trails the Sensex’s 226.30% gain.

Domestic mutual funds hold no stake in the company, which may reflect a lack of confidence or interest from institutional investors who typically conduct thorough due diligence. This absence of institutional backing further highlights concerns about the company’s near-term prospects and financial health.

Technicals: Key Driver Behind Upgrade

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in technical indicators. The technical trend has shifted from bearish to mildly bearish, signalling a potential stabilisation in the stock’s price movement. Key technical metrics reveal a mixed but cautiously optimistic picture:

• MACD on a weekly basis has turned mildly bullish, although the monthly MACD remains bearish.


• Relative Strength Index (RSI) on both weekly and monthly charts shows no clear signal, indicating a neutral momentum.


• Bollinger Bands on weekly and monthly timeframes remain mildly bearish, suggesting limited volatility but no strong upward breakout.


• Daily moving averages are mildly bearish, reflecting short-term caution among traders.


• KST (Know Sure Thing) indicator remains bearish on both weekly and monthly charts, signalling that momentum has yet to fully recover.


• Dow Theory analysis shows no definitive trend on weekly or monthly scales, indicating market indecision.


• On-balance volume (OBV) is neutral weekly and mildly bearish monthly, suggesting volume trends are not strongly supporting price gains.

Despite these mixed signals, the shift from a strongly bearish to a mildly bearish technical stance has been sufficient to warrant a rating upgrade. The stock price has also shown modest gains, rising 2.01% on the day to ₹397.95 from a previous close of ₹390.10, with a daily high of ₹400.30 and low of ₹391.85. The 52-week price range remains wide, between ₹360.90 and ₹587.00, reflecting significant volatility over the past year.

Market Context and Comparative Performance

When compared to the broader market, I G Petrochemicals has underperformed significantly. The Sensex has delivered positive returns across most time frames, while the stock has lagged behind, particularly over the last one and three years. This underperformance is a critical consideration for investors weighing the stock’s prospects against other opportunities in the commodity chemicals sector and beyond.

Given the company’s current Mojo Score of 31.0 and a Mojo Grade of Sell, down from a previous Strong Sell, the outlook remains cautious. The market capitalisation grade stands at 3, reflecting the company’s modest size within its industry. The upgrade in technical grade is a positive development but does not yet offset the fundamental weaknesses evident in the financial results and long-term growth trends.

Conclusion: Technical Improvement Offers Limited Relief

The upgrade of I G Petrochemicals Ltd’s investment rating from Strong Sell to Sell reflects a nuanced view of the company’s current position. While technical indicators have improved, signalling a potential bottoming out of the stock price, fundamental challenges remain significant. The company’s poor recent financial performance, negative profit trends, and underwhelming long-term growth prospects continue to weigh heavily on its outlook.

Investors should approach the stock with caution, recognising that the technical upgrade does not yet translate into a fundamental turnaround. The stock’s valuation, while attractive on some metrics, remains elevated relative to peers given the earnings decline. Institutional disinterest and weak returns compared to the broader market further underscore the risks involved.

For those considering exposure to the commodity chemicals sector, it may be prudent to explore alternative opportunities with stronger financials and more robust growth trajectories, as highlighted by recent comparative analyses.

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