Nahar Polyfilms Ltd Upgraded to Hold on Improved Financials and Valuation

Quality Assessment: Stability Amidst Mixed Signals

The quality grade of Nahar Polyfilms remains steady, supported by its robust operational metrics despite some challenges. The company’s Return on Capital Employed (ROCE) for the half-year ended December 2025 stands at a healthy 8.53%, marking the highest level in recent periods and signalling efficient capital utilisation. Additionally, the debt-equity ratio is impressively low at 0.11 times, underscoring a conservative capital structure and limited financial risk.

Profit after tax (PAT) for the quarter reached ₹19.33 crores, reflecting a strong growth rate of 27.4% compared to the previous four-quarter average. This consistent profitability over seven consecutive quarters highlights operational resilience. However, the Profit Before Tax excluding Other Income (PBT less OI) declined by 21.2% to ₹10.33 crores, indicating some pressure on core earnings. Notably, non-operating income constitutes 52.98% of PBT, suggesting that a significant portion of profits derives from ancillary sources rather than core operations.

Overall, while the company demonstrates solid fundamentals and prudent financial management, the reliance on non-operating income and the dip in core profitability temper the quality outlook, justifying a Hold rating rather than a more bullish stance.

Valuation: From Attractive to Very Attractive

Nahar Polyfilms’ valuation grade has improved markedly from attractive to very attractive, driven by compelling multiples relative to its sector peers. The stock trades at a price-to-earnings (PE) ratio of 8.77, significantly lower than many textile and packaging industry comparators, which often exceed 40. The price-to-book value stands at 0.75, indicating the stock is priced below its net asset value, a potential value opportunity for investors.

Enterprise value to EBITDA ratio is 7.27, and EV to capital employed is a mere 0.77, both suggesting the company is undervalued relative to its earnings and asset base. The PEG ratio, a measure of valuation relative to earnings growth, is exceptionally low at 0.08, signalling that the stock’s price does not fully reflect its earnings growth potential. Dividend yield remains modest at 0.39%, consistent with the company’s reinvestment strategy.

These valuation metrics, combined with a ROCE of 6.55% and ROE of 7.12%, position Nahar Polyfilms as a very attractive investment on a relative basis, especially when compared to peers such as R&B Denims and SBC Exports, which trade at significantly higher multiples.

Financial Trend: Positive but Moderating

The financial trend for Nahar Polyfilms has shifted from very positive to positive, reflecting a moderation in momentum despite continued growth. The company’s financial score has decreased from 21 to 9 over the past three months, signalling some caution among analysts. Nevertheless, the quarter ended December 2025 showed encouraging results with PAT growth of 27.4% and a strong EBIT to interest coverage ratio averaging 20.77, indicating robust debt servicing capability.

While the operating profit growth rate over the last five years remains modest at 3.5% annually, the company’s recent quarterly performance suggests an acceleration in earnings. The stock’s one-year return of 28.29% substantially outpaces the Sensex’s 9.85% return, and the five-year return of 180.67% dwarfs the Sensex’s 62.34%, underscoring strong market performance relative to benchmarks.

However, the decline in PBT excluding other income and the high proportion of non-operating income in profits warrant a cautious outlook on sustainability. These factors contribute to the tempered financial trend rating and support the Hold recommendation.

Technicals: Market Momentum and Price Action

Technically, Nahar Polyfilms has demonstrated positive price momentum, with the stock price rising 1.25% on 13 February 2026 to ₹258.50 from the previous close of ₹255.30. The stock’s 52-week range spans ₹175.00 to ₹388.00, indicating significant volatility but also room for upside. The day’s trading range was narrow, between ₹258.50 and ₹259.90, suggesting consolidation near current levels.

Short-term returns are robust, with a one-week gain of 3.73% and a one-month gain of 12.07%, both outperforming the Sensex which recorded 0.43% and -0.24% respectively over the same periods. Year-to-date, the stock has returned 10.19% compared to the Sensex’s negative 1.81%, reinforcing positive technical momentum.

Despite these gains, the stock’s relative underperformance over three years (6.77% vs Sensex’s 37.89%) and the modest operating profit growth suggest that technical strength is currently driven more by short-term factors than long-term fundamentals. This mixed technical picture aligns with the Hold rating, signalling investors to monitor price action closely for confirmation of sustained trends.

Long-Term Considerations and Market Positioning

Over the long term, Nahar Polyfilms’ growth trajectory presents a mixed picture. While the company has delivered positive financial results for seven consecutive quarters and maintains a strong balance sheet, its operating profit growth rate of 3.5% per annum over five years is relatively subdued. This slow growth may limit upside potential despite attractive valuations.

Institutional interest remains low, with domestic mutual funds holding a mere 0.03% stake. Given their capacity for detailed research and due diligence, this limited exposure may reflect concerns about the company’s growth prospects or valuation at current levels.

Nevertheless, the company’s market-beating returns over one and five years, combined with a PEG ratio of 0.1 and a discount to peer valuations, suggest that Nahar Polyfilms remains a viable option for investors seeking value in the packaging sector, albeit with a cautious stance.

Conclusion: A Balanced Upgrade Reflecting Improved Fundamentals and Valuation

The upgrade of Nahar Polyfilms Ltd from Sell to Hold by MarketsMOJO on 12 February 2026 is underpinned by a comprehensive reassessment of its quality, valuation, financial trend, and technical parameters. The company’s improved valuation metrics and solid financial performance have outweighed concerns related to core profitability and long-term growth rates.

Investors should note the company’s strong capital efficiency, low leverage, and positive earnings momentum, balanced against the reliance on non-operating income and modest operating profit growth. The stock’s recent outperformance relative to the Sensex and peers further supports the Hold rating, signalling a cautious but constructive outlook.

As always, investors are advised to monitor quarterly results and market developments closely to reassess the company’s trajectory and valuation in the evolving market context.

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