One 97 Communications Ltd Upgraded to Hold on Strong Fundamentals and Technical Improvement

Technical Trends Shift to Mildly Bearish

The primary catalyst for the rating upgrade stems from a notable improvement in the company’s technical grade. Previously classified as bearish, the technical trend has now shifted to mildly bearish, indicating a less pessimistic market sentiment. Key technical indicators present a mixed but cautiously optimistic picture. The Moving Average Convergence Divergence (MACD) remains bearish on a weekly basis but has softened to mildly bearish on the monthly chart. Meanwhile, the Relative Strength Index (RSI) shows no clear signal on both weekly and monthly timeframes, suggesting a neutral momentum.

Bollinger Bands reveal a divergence in trend strength: mildly bearish on the weekly scale but bullish monthly, hinting at potential upward price movement in the medium term. The daily moving averages also reflect a mildly bearish stance, while the Know Sure Thing (KST) oscillator is bearish weekly but bullish monthly. Dow Theory indicators are mildly bullish weekly but mildly bearish monthly, and On-Balance Volume (OBV) follows a similar pattern with mild bullishness weekly and mild bearishness monthly.

This blend of technical signals suggests that while short-term caution remains, the medium-term outlook is improving, supporting the upgrade to Hold from a previously negative stance.

Robust Financial Performance Underpins Confidence

One 97 Communications Ltd has demonstrated outstanding financial results in the third quarter of FY25-26, reinforcing the rationale behind the rating upgrade. The company reported net sales reaching a record ₹2,194 crores, with Profit Before Depreciation, Interest and Taxes (PBDIT) hitting ₹156 crores, the highest quarterly figure to date. Profit Before Tax excluding other income (PBT less OI) surged by 109.8% to ₹18 crores compared to the previous four-quarter average.

Net profit growth has been particularly impressive, soaring by 927.27% in the latest quarter, a testament to the company’s operational efficiency and market positioning. This marks the third consecutive quarter of positive results, signalling sustained momentum. Operating profits have grown at a compound annual growth rate (CAGR) of 23.11%, underscoring strong long-term fundamentals.

Institutional investors hold a significant 72.08% stake in the company, reflecting confidence from sophisticated market participants who typically conduct rigorous fundamental analysis before committing capital.

Valuation Remains Elevated but Justified by Growth

Despite the positive financial trajectory, valuation metrics indicate that One 97 Communications Ltd remains relatively expensive. The stock trades at a Price to Book (P/B) ratio of 4.6, which is high compared to peer averages. Return on Equity (ROE) stands at a modest 0.4, suggesting that the premium valuation is driven more by growth expectations than current profitability.

The Price/Earnings to Growth (PEG) ratio is 1.1, indicating that the stock’s price is roughly in line with its earnings growth rate, which is a reasonable valuation for a high-growth fintech company. Over the past year, the stock has delivered a 36.56% return, significantly outperforming the BSE500 index return of 7.62%. This market-beating performance is supported by a 125% increase in profits over the same period, validating the premium valuation to some extent.

Quality Assessment and Market Capitalisation

One 97 Communications Ltd is classified as a mid-cap stock with a Mojo Score of 52.0, reflecting a Hold rating. This is an improvement from the previous Sell grade, indicating a more balanced risk-reward profile. The company’s quality grade has stabilised due to consistent earnings growth and improving technicals, although valuation concerns temper enthusiasm.

The stock’s 52-week price range spans from ₹681.95 to ₹1,381.75, with the current price at ₹1,113.05, up 8.18% on the day of the rating change. This price action aligns with the technical indicators suggesting a transition from bearish to mildly bearish trends, with potential for further upside if momentum sustains.

Comparative Returns Highlight Long-Term Strength

Examining returns over various time horizons reveals One 97 Communications Ltd’s strong relative performance. The stock has outpaced the Sensex and broader market indices consistently, with a 1-year return of 36.56% versus Sensex’s 4.49%, and a 3-year return of 72.3% compared to Sensex’s 29.63%. Year-to-date, the stock has declined by 14.3%, slightly worse than the Sensex’s 8.99% fall, reflecting short-term volatility but not undermining the longer-term growth story.

Investment Outlook: Balanced but Cautiously Optimistic

The upgrade to Hold reflects a more balanced view of One 97 Communications Ltd’s prospects. While the company’s financial performance and institutional backing are strong positives, the elevated valuation and mixed technical signals warrant caution. Investors should weigh the company’s impressive growth trajectory and market-beating returns against the premium price and short-term technical uncertainties.

For long-term investors, the company’s consistent quarterly earnings growth, strong operating profit CAGR, and improving technical indicators provide a compelling case to maintain exposure. However, those sensitive to valuation or seeking more immediate momentum may prefer to monitor the stock for clearer technical confirmation before increasing positions.

Overall, the Hold rating signals that One 97 Communications Ltd is no longer a sell candidate but has yet to demonstrate the full strength required for a Buy recommendation. The company remains a key fintech player with solid fundamentals and improving market sentiment, deserving close attention as it navigates evolving market conditions.

Summary of Rating Change Parameters

The rating upgrade was driven by four key parameters:

• Quality: Improved due to sustained earnings growth and strong institutional ownership.
• Valuation: Remains expensive but justified by growth, with a PEG ratio near 1.1.
• Financial Trend: Outstanding quarterly results with triple-digit profit growth and record sales.
• Technicals: Shift from bearish to mildly bearish trend, with mixed but improving momentum indicators.

This comprehensive assessment underpins the revised Hold rating, reflecting a more constructive but measured outlook for One 97 Communications Ltd.

Limited Period Only. Get Started for only Rs. 16,999 - Get MojoOne for 2 Years + 1 Year Absolutely FREE! (72% Off) Get 72% Off →