NCL Industries Ltd Upgraded to Hold as Valuation and Financials Improve Amid Mixed Technical Signals

Valuation Upgrade Signals Improved Market Appeal

The most significant driver behind the rating upgrade is the marked improvement in valuation metrics. NCL Industries’ valuation grade has been raised from Attractive to Very Attractive, reflecting its current trading multiples relative to peers and historical averages. The company’s price-to-earnings (PE) ratio stands at a moderate 15.38, considerably lower than some peers such as Shree Digvijay Cement, which trades at a PE of 35.22 and is classified as Very Expensive.

Further supporting this valuation upgrade are the enterprise value (EV) multiples: EV to EBITDA at 7.99 and EV to Capital Employed at a notably low 0.99. These figures indicate that the stock is trading at a discount relative to its earnings and capital base, enhancing its appeal to value-conscious investors. The price-to-book value ratio of 0.98 also suggests the stock is undervalued compared to its net asset value.

Dividend yield remains modest at 1.55%, while return on capital employed (ROCE) and return on equity (ROE) are at 7.40% and 6.38% respectively, reflecting moderate profitability. Although these returns are not stellar, they contribute to the perception of value, especially given the company’s low debt levels.

Technical Indicators Reflect Mixed Signals but Lean Towards Bearishness

The technical grade change was a key factor in the overall rating adjustment, with the technical trend shifting from sideways to mildly bearish. On a weekly basis, the Moving Average Convergence Divergence (MACD) remains mildly bullish, but the monthly MACD is bearish, indicating some divergence in momentum across timeframes.

Relative Strength Index (RSI) readings on both weekly and monthly charts show no clear signals, suggesting a lack of strong momentum either way. However, Bollinger Bands are bearish on both weekly and monthly scales, signalling increased volatility and downward pressure on prices.

Daily moving averages are bearish, reinforcing the short-term negative trend. The Know Sure Thing (KST) indicator, however, is mildly bullish on both weekly and monthly charts, hinting at potential underlying strength. Dow Theory assessments are mixed, mildly bearish weekly but mildly bullish monthly, reflecting uncertainty in trend direction.

On-balance volume (OBV) shows no clear trend weekly but is bullish monthly, suggesting accumulation over the longer term despite short-term selling pressure. Overall, technicals present a complex picture with a slight bearish tilt, justifying a cautious upgrade rather than a full buy recommendation.

Financial Trend: Mixed Performance with Recent Positives but Long-Term Challenges

Financially, NCL Industries has delivered a mixed bag of results. The company reported a strong quarterly profit after tax (PAT) of ₹26.57 crores in Q2 FY25-26, representing a remarkable growth of 191.9% compared to the previous four-quarter average. Operating profit to interest coverage ratio reached a robust 11.00 times, highlighting the company’s ability to comfortably service its debt obligations.

Despite these encouraging short-term results, the longer-term financial trend remains subdued. Operating profit has declined at an annualised rate of -11.31% over the past five years, signalling structural challenges in growth. Profitability has also contracted, with profits falling by 16.2% over the last year. This has translated into a negative stock return of -7.46% over the same period, underperforming the Sensex, which gained 8.65% in one year.

The company’s debt-to-equity ratio remains low at 0.34 times on average, which is a positive sign for financial stability. However, the limited presence of domestic mutual funds, holding only 0.01% of the stock, suggests a lack of strong institutional conviction, possibly due to concerns over growth prospects or valuation at current levels.

Quality Assessment: Moderate with Room for Improvement

NCL Industries’ overall quality grade remains moderate, reflected in its Mojo Grade of Hold. While the company benefits from a low leverage profile and recent profitability improvements, its long-term growth trajectory and return metrics are below sector averages. The company’s market capitalisation grade is 4, indicating a mid-sized firm with limited scale compared to larger cement producers.

Operationally, the company faces challenges in sustaining growth and improving margins amid competitive pressures in the cement industry. The stock’s 52-week high of ₹239.20 and low of ₹180.10 illustrate a wide trading range, with the current price of ₹193.00 closer to the lower end, reflecting investor caution.

Comparative Returns and Market Context

Over various time horizons, NCL Industries has underperformed the broader market benchmarks. The stock’s returns versus the Sensex are as follows:

• 1 week: -4.22% vs Sensex -0.75%


• 1 month: -2.53% vs Sensex -1.98%


• Year-to-date: -3.69% vs Sensex -2.32%


• 1 year: -7.46% vs Sensex +8.65%


• 3 years: +10.98% vs Sensex +36.79%


• 5 years: +29.75% vs Sensex +68.52%


• 10 years: +51.49% vs Sensex +240.06%

This performance gap highlights the company’s struggle to keep pace with broader market gains, particularly over medium and long-term periods. Investors should weigh this relative underperformance against the company’s improved valuation and recent technical signals when considering their positions.

Conclusion: A Cautious Upgrade Reflecting Valuation and Technical Nuances

The upgrade of NCL Industries Ltd from Sell to Hold is primarily driven by a more attractive valuation profile and a nuanced technical outlook. While the company’s financial trends and quality metrics present challenges, particularly in long-term growth and profitability, the stock’s discounted multiples and mixed but improving technical indicators justify a more neutral stance.

Investors should remain cautious given the bearish technical signals and the company’s underwhelming returns relative to the Sensex. However, the low debt levels, recent profit growth, and very attractive valuation metrics provide a foundation for potential recovery if operational performance improves.

Overall, NCL Industries represents a stock with value appeal but requires close monitoring of financial and technical developments before considering a more bullish investment stance.

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