Nexus Surgical and Medicare Ltd Upgraded to Sell on Technical Improvements and Valuation Insights

Quality Assessment: Weak Long-Term Fundamentals

Nexus Surgical operates within the Non Banking Financial Company (NBFC) sector, a space that demands consistent financial strength and growth. The company’s quality rating remains subdued due to its flat financial performance in the third quarter of FY25-26. Operating profits have grown at a modest compound annual growth rate (CAGR) of just 3.19%, signalling limited expansion in core earnings. While the company boasts a robust return on equity (ROE) of 41.7%, this figure is overshadowed by concerns over sustainability and earnings quality.

Moreover, the majority shareholding is held by non-institutional investors, which can sometimes indicate less stable ownership structures compared to institutional backing. This factor contributes to the cautious stance on the company’s quality grade. Overall, the fundamental strength remains weak, justifying the retention of a Sell rating despite technical improvements.

Valuation: Expensive Yet Discounted Relative to Peers

From a valuation perspective, Nexus Surgical is considered very expensive. The stock trades at a price-to-book (P/B) ratio of 7.5, which is significantly higher than typical NBFC sector averages. This elevated valuation reflects high market expectations for the company’s future growth and profitability. However, the stock is currently trading at a discount compared to its peers’ historical valuations, suggesting some relative value remains.

Despite the lofty P/B ratio, the company’s price-to-earnings growth (PEG) ratio stands at 0.8, indicating that earnings growth is somewhat aligned with the stock price appreciation. Over the past year, Nexus Surgical’s profits have increased by 11%, while the stock price has surged 24.52%, outperforming the broader BSE500 index and Sensex benchmarks. This outperformance has attracted investor interest but also raises questions about whether the premium valuation is justified given the flat recent quarterly results.

Financial Trend: Flat Quarterly Performance Amid Long-Term Gains

The financial trend for Nexus Surgical has been mixed. The company reported flat results in the December 2025 quarter, which dampened near-term growth expectations. Operating profits showed no significant improvement, reinforcing concerns about the company’s ability to accelerate earnings growth in the short term.

However, the longer-term financial trajectory is more encouraging. Over the past one year, the stock has delivered a total return of 24.52%, substantially outperforming the Sensex’s 9.35% return for the same period. Over three years, the stock’s return of 74.22% more than doubles the Sensex’s 36.45%, and over five years, the stock has delivered a staggering 473.72% return compared to the Sensex’s 62.73%. These figures highlight the company’s capacity to generate market-beating returns despite recent stagnation in quarterly earnings.

Technicals: Shift from Mildly Bearish to Mildly Bullish

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in technical indicators. The technical grade has shifted from mildly bearish to mildly bullish, reflecting a more positive market sentiment towards the stock. Key technical signals include:

• MACD: Weekly readings are bullish, although monthly indicators remain mildly bearish, suggesting short-term momentum is improving faster than longer-term trends.
• RSI: The monthly RSI is bullish, indicating strengthening buying pressure, while the weekly RSI shows no clear signal.
• Bollinger Bands: Both weekly and monthly bands are bullish, signalling increased volatility with upward price movement.
• Moving Averages: Daily averages remain mildly bearish, reflecting some short-term caution.
• KST and Dow Theory: Weekly indicators are mildly bullish, while monthly readings are mixed, showing a tentative but positive trend.

These technical improvements have coincided with a strong price performance recently, with the stock price rising 10.02% on the day of the rating change to ₹18.99 from a previous close of ₹17.26. The stock’s 52-week high stands at ₹22.00, while the low is ₹13.26, indicating a recovery from recent lows.

Market Performance Context: Outperforming Benchmarks

When compared with broader market indices, Nexus Surgical’s stock has demonstrated impressive returns. Over the last week, the stock surged 10.99%, vastly outperforming the Sensex’s 0.23% gain. Over one month, the stock returned 15.44% versus the Sensex’s 0.77%. Year-to-date, the stock is up 8.51%, while the Sensex is down 2.82%. These figures underscore the stock’s resilience and appeal to investors despite underlying fundamental concerns.

However, the company’s 10-year return of -61.98% contrasts sharply with the Sensex’s 249.29%, reflecting past challenges and volatility. This long-term underperformance tempers enthusiasm and highlights the importance of cautious optimism.

Conclusion: A Cautious Upgrade Reflecting Technical Momentum

The upgrade of Nexus Surgical and Medicare Ltd’s investment rating from Strong Sell to Sell is primarily driven by a positive shift in technical indicators, signalling improving market sentiment and momentum. However, the company’s fundamental and valuation metrics remain challenging, with flat recent financial results, weak long-term growth, and an expensive price-to-book ratio.

Investors should weigh the technical optimism against the company’s modest earnings growth and high valuation. While the stock has outperformed market benchmarks in the short and medium term, the lack of fundamental improvement suggests that caution remains warranted. The Sell rating reflects this balanced view, advising investors to monitor developments closely before considering a more bullish stance.

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