NMDC Steel Ltd Downgraded to Strong Sell Amid Weak Fundamentals and Technical Setbacks

Quality Assessment: Weak Long-Term Fundamentals

NMDC Steel’s quality rating remains under pressure due to its poor long-term fundamental strength. The company’s average Return on Capital Employed (ROCE) stands at a concerning 0%, signalling an inability to generate adequate returns on invested capital. This metric is critical for assessing operational efficiency and value creation, and NMDC Steel’s stagnant ROCE highlights structural inefficiencies.

Moreover, the firm’s operating profit has declined at an annualised rate of -37.79% over the past five years, underscoring a sustained erosion in profitability. This negative growth trajectory is compounded by a high Debt to EBITDA ratio of -1.00 times, indicating a weak capacity to service debt obligations. Such financial strain raises questions about the company’s resilience in a cyclical industry like steel manufacturing.

While NMDC Steel has reported positive results for the last four consecutive quarters, including net sales growth of 75.67% in the latest six months to ₹6,397.59 crores and an inventory turnover ratio of 4.00 times, these short-term improvements have not translated into a reversal of its long-term fundamental challenges.

Valuation Concerns: Risky Trading Levels

The stock’s valuation remains unattractive relative to its historical averages and sector benchmarks. NMDC Steel’s current market price is ₹40.34, down 2.25% on the day from a previous close of ₹41.27, and trading closer to its 52-week low of ₹28.35 than its high of ₹49.62. Over the past year, the stock has delivered a modest return of 6.24%, lagging behind the Sensex’s 8.52% gain during the same period.

Despite this positive return, the company’s profits have fallen sharply by 52% over the last year, signalling a disconnect between price performance and underlying earnings. This divergence suggests that the stock is trading at a risky premium relative to its deteriorating earnings profile, which may deter value-conscious investors.

Financial Trend: Mixed Signals Amid Profitability Challenges

NMDC Steel’s recent quarterly financial performance shows some encouraging signs, with net sales growth and improved inventory turnover. However, the broader financial trend remains negative. The company’s operating profits have declined by over half in the past year, and its long-term operating profit growth rate is deeply negative at -37.79% annually.

The high Debt to EBITDA ratio of -1.00 times further exacerbates concerns about the company’s ability to sustain operations without additional financial strain. This ratio indicates that the company’s debt levels are disproportionate to its earnings before interest, taxes, depreciation, and amortisation, raising the risk of liquidity issues in a volatile steel market.

Institutional investors hold a significant 20.48% stake in NMDC Steel, reflecting some confidence from sophisticated market participants. Yet, this has not been sufficient to offset the company’s fundamental weaknesses or prevent the downgrade in its investment rating.

Technical Analysis: Downgrade Driven by Sideways Momentum and Bearish Indicators

The most significant trigger for the recent downgrade to Strong Sell is the deterioration in NMDC Steel’s technical profile. The technical trend has shifted from mildly bullish to sideways, signalling a loss of upward momentum and increasing uncertainty among traders.

Key technical indicators paint a bearish picture: the weekly MACD is bearish, and the monthly MACD is mildly bearish, indicating weakening momentum over both short and medium terms. Bollinger Bands on both weekly and monthly charts are bearish, suggesting increased volatility and downward pressure on prices.

While daily moving averages remain mildly bullish, this is insufficient to counterbalance the broader negative signals. The KST indicator is bullish on a weekly basis but lacks confirmation on the monthly timeframe. Dow Theory shows no clear trend on weekly or monthly charts, and the On-Balance Volume (OBV) indicator is neutral weekly but bullish monthly, reflecting mixed volume dynamics.

These conflicting signals have led to a cautious stance, with technical analysts downgrading the stock’s grade and contributing to the overall Strong Sell recommendation.

Comparative Performance: Lagging Behind Benchmarks

When compared to the broader market, NMDC Steel’s returns have underperformed over recent periods. The stock declined by 2.61% in the past week and 3.65% over the last month, while the Sensex fell by 1.14% and 1.20% respectively. Year-to-date, NMDC Steel’s return is -8.86%, significantly worse than the Sensex’s -3.04% over the same timeframe.

Although the stock has posted a 6.24% gain over the last year, this is still below the Sensex’s 8.52% return. Over longer horizons, the Sensex’s 3-year and 5-year returns of 36.73% and 60.30% respectively highlight the stock’s relative underperformance, with no comparable data available for NMDC Steel over these periods.

This lagging performance, combined with deteriorating fundamentals and technicals, reinforces the rationale behind the Strong Sell rating.

Outlook and Investor Considerations

Investors should approach NMDC Steel with caution given its weak long-term fundamentals, risky valuation, and deteriorating technical momentum. While short-term sales growth and institutional interest provide some positive signals, these are overshadowed by declining profitability and financial leverage concerns.

The downgrade to Strong Sell reflects a comprehensive reassessment across four key parameters: quality, valuation, financial trend, and technicals. Each factor contributes to a less favourable investment outlook, suggesting that investors may be better served exploring alternative opportunities within the ferrous metals sector or broader market.

Given the stock’s current technical sideways trend and bearish momentum indicators, short-term trading opportunities appear limited. Long-term investors should monitor improvements in operating profit growth and debt servicing capacity before considering a re-entry.

Summary of Ratings and Scores

As of 15 Feb 2026, NMDC Steel holds a Mojo Score of 29.0 and a Mojo Grade of Strong Sell, downgraded from Sell. The Market Cap Grade remains at 3, reflecting moderate market capitalisation relative to peers. The downgrade was primarily driven by the technical grade change, with the technical trend shifting from mildly bullish to sideways and multiple bearish indicators on weekly and monthly charts.

Investors should weigh these ratings alongside the company’s financial metrics and sector outlook before making investment decisions.

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