Manorama Industries Ltd Upgraded to Buy on Strong Financials and Technical Momentum

Quality Assessment: High Management Efficiency and Consistent Profitability

Manorama Industries continues to demonstrate strong operational quality, highlighted by a return on capital employed (ROCE) of 17.22%, signalling efficient use of capital to generate profits. The company’s financial discipline is evident in its consistent track record, having declared positive results for six consecutive quarters. The latest quarter, Q3 FY25-26, saw the highest quarterly PBDIT at ₹104.14 crores, PBT excluding other income at ₹84.29 crores, and PAT at ₹72.27 crores, underscoring sustained profitability.

Net sales have grown at an impressive annual rate of 53.54%, while operating profit surged by 70.22%, reflecting strong top-line and margin expansion. Net profit growth of 24.34% in the latest quarter further cements the company’s quality credentials. These figures place Manorama Industries well ahead of many peers in the solvent extraction segment within the FMCG sector.

Valuation: Expensive Yet Discounted Relative to Peers

Despite the company’s strong fundamentals, valuation metrics suggest a nuanced picture. The ROCE of 29.2% and an enterprise value to capital employed ratio of 9.9 indicate a relatively expensive valuation. However, when compared to historical averages of peer companies, Manorama Industries is trading at a discount, offering a potential value proposition for investors.

The price-to-earnings-to-growth (PEG) ratio stands at a low 0.2, signalling that the stock’s price growth is not fully reflecting its profit growth, which has risen by 162.5% over the past year. This disconnect between valuation and earnings growth supports the rationale for the upgrade, suggesting room for further appreciation as the market realises the company’s earnings potential.

Financial Trend: Robust Growth and Outperformance Against Benchmarks

Manorama Industries has delivered exceptional returns over multiple time horizons, significantly outperforming the Sensex and BSE500 indices. The stock generated a 37.8% return over the last year, compared to Sensex’s 9.81%, and an extraordinary 577.7% return over three years versus Sensex’s 36.8%. Over five years, the stock’s return of 901.51% dwarfs the Sensex’s 61.4%, highlighting its strong growth trajectory.

Year-to-date, the stock has gained 6.63%, while the Sensex declined by 2.08%, further emphasising the company’s resilience and growth momentum. These returns are supported by very positive quarterly financial performance, with net sales and operating profits growing at double-digit rates, and net profit rising steadily.

Technical Analysis: Shift to Mildly Bullish Momentum

The upgrade in Manorama Industries’ rating is strongly influenced by a positive shift in technical indicators. The technical trend has moved from sideways to mildly bullish, signalling improving market sentiment and potential for further price appreciation.

Key technical signals include a bullish weekly MACD and Bollinger Bands on both weekly and monthly charts, indicating upward momentum and volatility expansion in the stock price. The Dow Theory readings are mildly bullish on both weekly and monthly timeframes, reinforcing the positive trend outlook.

However, some mixed signals remain: the monthly MACD and KST are mildly bearish, and daily moving averages show a mildly bearish stance, suggesting some caution in the short term. The weekly KST and monthly OBV are mildly bullish, indicating accumulation and positive momentum among traders.

Price action remains strong, with the current price at ₹1,422.55, slightly up 0.26% from the previous close of ₹1,418.85. The stock’s 52-week range is ₹736.15 to ₹1,774.00, and it has recently traded near its daily high of ₹1,443.35, reflecting renewed buying interest.

Risks: Institutional Selling and Valuation Concerns

Despite the positive outlook, certain risks remain. Institutional investors have reduced their stake by 0.65% in the previous quarter, now holding 6.32% of the company. This decline in institutional participation could signal caution among sophisticated investors, potentially impacting liquidity and price stability.

Additionally, the relatively high valuation metrics, such as the enterprise value to capital employed ratio of 9.9, suggest that the stock is priced at a premium compared to some peers. Investors should weigh these factors against the company’s strong growth and quality metrics before making investment decisions.

Conclusion: Upgrade Reflects Balanced Optimism on Growth and Momentum

The upgrade of Manorama Industries Ltd from Hold to Buy by MarketsMOJO reflects a comprehensive reassessment of the company’s quality, valuation, financial trends, and technical outlook. Strong quarterly earnings, consistent long-term growth, and a shift to a mildly bullish technical trend underpin this positive revision.

While valuation remains on the higher side and institutional selling poses a cautionary note, the company’s robust fundamentals and superior returns relative to benchmarks provide a compelling investment case. Investors seeking exposure to the solvent extraction segment within FMCG may find Manorama Industries an attractive proposition, supported by a Mojo Score of 71.0 and a Buy grade.

As always, investors should consider their risk tolerance and investment horizon before acting on this upgrade, balancing the company’s growth potential against market and sector dynamics.

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