NMDC Steel Ltd Upgraded to Sell on Technical Improvements Despite Lingering Fundamental Concerns

Quality Assessment: Weak Long-Term Fundamentals Persist

NMDC Steel operates within the ferrous metals sector, a space characterised by cyclical demand and commodity price volatility. The company’s quality rating remains low, with a Mojo Score of 39.0 and a Market Cap Grade of 3, signalling limited market capitalisation strength. Its long-term fundamental strength is weak, evidenced by an average Return on Capital Employed (ROCE) of 0%, indicating the company has struggled to generate returns on invested capital over recent years.

Moreover, operating profit has declined at an annualised rate of -37.79% over the past five years, underscoring persistent profitability challenges. The company’s ability to service debt is also concerning, with a Debt to EBITDA ratio of -1.00 times, reflecting negative EBITDA and raising questions about financial sustainability. These factors collectively justify the cautious stance reflected in the Sell rating despite the recent upgrade.

Valuation and Market Performance: Risky but Showing Signs of Recovery

From a valuation perspective, NMDC Steel’s stock trades at levels considered risky relative to its historical averages. The stock’s return over the past year has been a modest 0.72%, lagging behind the Sensex’s 8.21% gain over the same period. Year-to-date, the stock has barely moved, with a 0.16% return compared to the Sensex’s 8.36%. However, shorter-term performance has been more encouraging, with a 3.94% gain over the past week and 3.3% over the last month, outperforming the Sensex’s negative returns in those periods.

The stock price currently stands at ₹43.24, up from the previous close of ₹41.76, with a 52-week high of ₹49.62 and a low of ₹28.35. This recent price appreciation suggests some renewed investor confidence, possibly driven by improved technical signals and positive quarterly financial results.

Financial Trend: Mixed Signals Amid Positive Quarterly Results

Despite the weak long-term fundamentals, NMDC Steel has reported positive financial performance in recent quarters. The company posted net sales of ₹3,389.90 crore in Q2 FY25-26, representing a robust 37.7% growth compared to the previous four-quarter average. This marks the third consecutive quarter of positive results, signalling some operational improvement.

However, profitability remains under pressure, with profits declining by 52% over the past year. The negative EBITDA and high debt servicing ratio continue to weigh on the company’s financial health. Institutional investors hold a significant 20.47% stake, suggesting that more sophisticated market participants see potential value or turnaround prospects despite the risks.

Technical Analysis: Key Driver Behind Upgrade

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in technical indicators. The technical trend has shifted from sideways to mildly bullish, reflecting a more positive market sentiment towards the stock. Daily moving averages are bullish, supporting the recent price gains.

Weekly technical indicators present a mixed but improving picture: the MACD remains mildly bearish on both weekly and monthly charts, but the Bollinger Bands are bullish on the weekly timeframe, and the KST (Know Sure Thing) indicator is bullish weekly. The Dow Theory signals a mildly bullish trend weekly, although it remains mildly bearish monthly. The On-Balance Volume (OBV) indicator is mildly bullish weekly, suggesting accumulation by investors.

Relative Strength Index (RSI) readings show no clear signal on weekly or monthly charts, indicating the stock is not currently overbought or oversold. Overall, these technical signals have encouraged a more optimistic outlook, justifying the upgrade despite fundamental weaknesses.

Comparative Returns: Underperformance Against Sensex Over Longer Terms

While NMDC Steel has outperformed the Sensex in the very short term, its longer-term returns lag significantly. Over one year, the stock returned 0.72% compared to the Sensex’s 8.21%. Over three and five years, the Sensex has delivered 39.17% and 77.34% returns respectively, with a ten-year return of 226.18%, highlighting the stock’s underperformance in the broader market context.

This disparity emphasises the need for investors to weigh short-term technical improvements against the company’s persistent fundamental challenges before making investment decisions.

Outlook and Investor Considerations

NMDC Steel’s recent upgrade to a Sell rating reflects a nuanced view balancing technical improvements against ongoing fundamental weaknesses. Investors should note that while the stock shows signs of short-term recovery and technical momentum, the company’s long-term profitability and financial health remain under strain.

Given the negative EBITDA, high debt servicing ratio, and poor long-term growth metrics, the stock carries considerable risk. However, the positive quarterly sales growth and institutional investor confidence provide some counterbalance, suggesting potential for operational turnaround if these trends continue.

Investors are advised to monitor upcoming quarterly results closely and watch for sustained improvements in profitability and debt metrics before considering a more bullish stance. The current Sell rating indicates caution but acknowledges the possibility of a technical rebound.

Summary of Ratings and Scores

As of 30 Dec 2025, NMDC Steel holds a Mojo Score of 39.0 with a Sell grade, upgraded from Strong Sell. The Market Cap Grade remains at 3, reflecting modest market capitalisation. Technical grades have improved notably, driving the rating change, while quality and financial trend scores remain weak. This comprehensive assessment is provided by MarketsMOJO, a trusted source for thematic and data-driven stock analysis.

Conclusion

NMDC Steel Ltd’s upgrade to Sell from Strong Sell is primarily a reflection of improved technical indicators signalling a mildly bullish trend. However, the company’s fundamental challenges, including weak profitability, negative EBITDA, and high debt levels, continue to weigh heavily on its investment appeal. Investors should approach the stock with caution, balancing short-term technical optimism against long-term financial risks.

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