Nahar Polyfilms Ltd Upgraded to Hold by MarketsMOJO on Improved Fundamentals and Valuation

Quality Assessment: Steady Financial Performance Amidst Sector Challenges

Nahar Polyfilms, operating within the packaging industry, has demonstrated a consistent financial trajectory over recent quarters. The company reported a 9.13% growth in net profit in Q2 FY25-26, marking its sixth consecutive quarter of positive results. This steady profitability is underpinned by a robust EBIT to interest coverage ratio averaging 20.42, indicating strong debt servicing capability. The half-yearly return on capital employed (ROCE) peaked at 8.53%, while the debt-to-equity ratio remained low at 0.11 times, reflecting prudent financial management.

However, long-term growth remains modest, with operating profit expanding at an annualised rate of just 4.27% over the past five years. This restrained growth tempers enthusiasm, especially when compared to broader sector peers. Additionally, domestic mutual funds hold a minimal stake of 0.03%, suggesting limited institutional conviction or cautious positioning at current valuations.

Valuation Upgrade: From Very Attractive to Attractive

The valuation grade for Nahar Polyfilms has been upgraded from very attractive to attractive, driven by a combination of favourable price multiples and enterprise value ratios. The stock trades at a price-to-earnings (PE) ratio of 9.73, significantly lower than many textile and packaging peers, such as R&B Denims (PE 44.18) and Sumeet Industries (PE 75.78). Its price-to-book value stands at 0.69, indicating the market values the company below its net asset base, which may appeal to value investors.

Enterprise value to EBITDA is 7.19, and EV to capital employed is a notably low 0.72, underscoring the stock’s relative discount. The PEG ratio is exceptionally low at 0.05, signalling that earnings growth is not fully priced in. Dividend yield remains modest at 0.42%, while return on equity (ROE) is 7.12%, consistent with the company’s moderate profitability profile.

Despite the upgrade, the valuation remains attractive rather than very attractive, reflecting a cautious stance given the company’s slower growth and sector dynamics.

Financial Trend: Positive Quarterly Results but Mixed Long-Term Returns

While the company’s quarterly financials have been encouraging, the longer-term return profile presents a more nuanced picture. Over the past year, Nahar Polyfilms has delivered a stock return of 2.61%, lagging the Sensex’s 8.49% gain. Over three years, the stock’s return is virtually flat at 0.06%, compared to the Sensex’s robust 37.63% advance. However, the five- and ten-year returns are impressive, at 156.41% and 413.92% respectively, substantially outperforming the Sensex’s 66.63% and 245.70% over the same periods.

Profit growth has been strong recently, with a 183% increase over the past year, yet operating profit growth remains subdued. This divergence suggests that while earnings momentum is improving, underlying operational expansion is still limited. Investors should weigh these factors carefully when considering the stock’s medium- to long-term prospects.

Technical Analysis: Shift from Bearish to Mildly Bearish Signals

The technical outlook for Nahar Polyfilms has improved, prompting an upgrade in the technical grade that contributed to the overall rating change. The technical trend has shifted from bearish to mildly bearish, reflecting a more constructive near-term price action. Key indicators present a mixed but cautiously optimistic picture:

• MACD remains bearish on the weekly chart but is mildly bearish on the monthly timeframe.
• Relative Strength Index (RSI) shows no clear signal on both weekly and monthly charts, indicating a neutral momentum.
• Bollinger Bands suggest mild bearishness on weekly and monthly scales, signalling some volatility but no strong downtrend.
• Moving averages on the daily chart are mildly bearish, though not decisively negative.
• KST indicator is bearish weekly but bullish monthly, hinting at potential longer-term strength.
• Dow Theory readings are mildly bullish weekly but mildly bearish monthly, reflecting short-term optimism tempered by longer-term caution.
• On-balance volume (OBV) shows no clear trend, indicating volume is not strongly supporting price moves.

Price action has been positive recently, with the stock rising 6.67% on the day to ₹240.00, up from a previous close of ₹225.00. The 52-week range remains wide, with a high of ₹388.00 and a low of ₹175.00, suggesting significant volatility and room for price discovery.

Market Position and Peer Comparison

Nahar Polyfilms operates in the textile and packaging sector, where valuation and growth prospects vary widely. Compared to peers such as R&B Denims and Sumeet Industries, which are classified as very expensive with PE ratios exceeding 40 and 70 respectively, Nahar Polyfilms offers a more affordable entry point. Its EV to EBITDA ratio of 7.19 is also significantly lower than many competitors, suggesting potential undervaluation.

Despite this, the company’s relatively small market capitalisation and limited institutional ownership may constrain liquidity and analyst coverage. Investors should consider these factors alongside the company’s improving fundamentals and technical signals.

Conclusion: A Cautious Hold with Potential Upside

The upgrade of Nahar Polyfilms Ltd’s investment rating from Sell to Hold reflects a balanced assessment of its current valuation, technical outlook, and financial performance. While the company’s recent quarterly results and improved technical indicators provide reasons for optimism, long-term growth remains modest and institutional interest limited.

Valuation metrics suggest the stock is attractively priced relative to peers, with a low PEG ratio indicating potential for earnings growth to be recognised by the market. Technical signals have shifted to a less bearish stance, supporting a more neutral outlook. However, investors should remain mindful of the company’s slower operating profit growth and the broader sector environment.

Overall, Nahar Polyfilms presents a cautious hold opportunity for investors seeking exposure to the packaging sector at a reasonable valuation, with the potential for upside if growth momentum sustains and technical trends improve further.

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