Patanjali Foods Ltd Upgraded to Hold by MarketsMOJO on Technical and Financial Improvements

Technical Trends Show Signs of Stabilisation

The primary catalyst for the upgrade lies in the technical assessment of Patanjali Foods’ stock price movement. The technical grade has improved from bearish to mildly bearish, indicating a reduction in downward momentum. Key technical indicators present a mixed but slightly positive picture. The Moving Average Convergence Divergence (MACD) remains bearish on a weekly basis but has softened to mildly bearish on the monthly chart. Similarly, the Relative Strength Index (RSI) shows no clear signal on both weekly and monthly timeframes, suggesting a neutral momentum without extreme overbought or oversold conditions.

Bollinger Bands analysis reveals a mildly bearish stance weekly but sideways movement monthly, implying reduced volatility and potential consolidation. Daily moving averages also reflect a mildly bearish trend, while the Know Sure Thing (KST) indicator remains bearish weekly but mildly bearish monthly. Notably, Dow Theory signals a mildly bullish trend weekly, contrasting with a mildly bearish monthly outlook. On-Balance Volume (OBV) shows no trend weekly but a mildly bullish pattern monthly, hinting at subtle accumulation by investors over the longer term.

These technical nuances collectively suggest that while the stock is not yet in a strong uptrend, the selling pressure has eased, warranting a more neutral stance from a technical perspective.

Financial Trend Remains Robust Despite Market Headwinds

Patanjali Foods has demonstrated solid financial performance in the second quarter of fiscal year 2025-26, underpinning the upgrade. Net sales reached a record ₹9,798.84 crore, growing at an annualised rate of 21.84%. Operating profit margins have expanded by 27.88%, reflecting operational efficiency and effective cost management. Profit Before Tax excluding other income stood at ₹453.86 crore, marking a 21.4% increase compared to the previous four-quarter average.

The company’s ability to service debt remains strong, with a low Debt to EBITDA ratio of 0.62 times, signalling manageable leverage and financial stability. Return on Equity (ROE) is at a respectable 11.8%, indicating reasonable profitability relative to shareholder equity. Additionally, the company declared its highest annual dividend per share (DPS) of ₹10.00, reinforcing confidence in cash flow generation and shareholder returns.

However, despite these positives, the stock’s one-year return has been negative at -6.72%, underperforming the Sensex’s 7.85% gain over the same period. This divergence is partly explained by the company’s expensive valuation metrics and market sentiment challenges.

Valuation Remains Elevated but Justified by Growth Prospects

Patanjali Foods trades at a premium valuation with a Price to Book (P/B) ratio of 5.1, considerably higher than many of its peers in the edible oil sector. This elevated valuation reflects investor expectations of sustained growth and profitability. The Price/Earnings to Growth (PEG) ratio stands at 1, suggesting that the stock’s price is aligned with its earnings growth rate, which is a positive sign for long-term investors.

Nonetheless, the premium valuation warrants caution, especially given the stock’s recent underperformance relative to broader market indices such as the BSE500. Investors should weigh the company’s growth trajectory against the risk of valuation correction in volatile market conditions.

Quality Assessment Tempered by Promoter Share Pledging

While Patanjali Foods exhibits strong operational and financial metrics, the quality rating remains cautious due to promoter share pledging. Currently, 37.77% of promoter shares are pledged, an increase over the last quarter. High levels of pledged shares can exert downward pressure on stock prices during market downturns, as forced selling may occur if margin calls arise.

This elevated pledge ratio introduces an element of risk that tempers the overall quality assessment, despite the company’s healthy fundamentals and growth prospects. Investors should monitor this metric closely as it can influence stock volatility and sentiment.

Stock Price and Market Performance Overview

On 6 January 2026, Patanjali Foods closed at ₹573.05, up 2.77% from the previous close of ₹557.60. The stock’s 52-week high and low are ₹663.96 and ₹500.00 respectively, indicating a moderate trading range. Short-term price action shows resilience with a one-week return of 5.57%, outperforming the Sensex’s 0.88% gain in the same period. The one-month return is also positive at 3.91%, compared to a slight Sensex decline of -0.32%.

Longer-term returns remain mixed. Over three years, the stock has appreciated 46.52%, marginally outperforming the Sensex’s 41.57%. Over five years, the stock has delivered a robust 154.90% return, significantly ahead of the Sensex’s 76.39%. The ten-year return is exceptional at 5593.49%, reflecting the company’s strong historical growth trajectory.

However, the recent one-year underperformance and the increase in promoter pledged shares suggest that investors should adopt a balanced view, recognising both the company’s strengths and potential risks.

Conclusion: A Cautious Hold with Potential Upside

The upgrade of Patanjali Foods Ltd’s investment rating from Sell to Hold reflects a balanced assessment of its current position. Technical indicators suggest a stabilising trend, while financial results demonstrate healthy growth and strong debt servicing capability. Valuation remains on the higher side but is supported by solid earnings growth, and quality concerns are moderated by the increased promoter share pledging.

Investors should consider Patanjali Foods as a stock with potential upside tempered by valuation and risk factors. The Hold rating signals that while the stock is no longer a sell, it may not yet be a compelling buy without further improvement in technical momentum and reduction in promoter pledging risks. Monitoring quarterly financial updates and market conditions will be crucial for reassessing the stock’s outlook in the coming months.

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