Resonance Specialities Ltd Upgraded to Hold on Improved Technicals and Financial Trends

Technical Trends Signal Mild Bullish Momentum

The primary catalyst for the upgrade stems from a shift in the technical trend from sideways to mildly bullish. Key technical indicators present a nuanced but positive picture. The Moving Average Convergence Divergence (MACD) on both weekly and monthly charts has turned mildly bullish, signalling potential upward momentum in the near term. Similarly, Bollinger Bands on weekly and monthly timeframes are bullish, suggesting the stock price is trending towards the upper band, which often precedes further gains.

However, not all technical signals are unequivocally positive. The daily moving averages remain mildly bearish, and the Dow Theory readings on weekly and monthly charts also indicate mild bearishness, reflecting some caution among traders. The Relative Strength Index (RSI) on weekly and monthly charts shows no clear signal, indicating the stock is neither overbought nor oversold. The Know Sure Thing (KST) indicator is mildly bullish on weekly and bullish on monthly charts, reinforcing the overall positive technical sentiment.

These mixed but predominantly positive technical signals have contributed to the stock’s recent price appreciation, with the current price at ₹101.50, up 2.46% on the day from a previous close of ₹99.06. The stock’s 52-week range remains wide, from ₹65.00 to ₹124.50, indicating significant volatility but also room for upside.

Financial Trend Shows Positive Quarterly Momentum

Resonance Specialities has demonstrated encouraging financial performance in recent quarters, particularly in Q2 FY25-26. The company reported net sales of ₹42.80 crores over the latest six months, reflecting a robust growth rate of 21.04%. Profitability metrics have also improved, with the Return on Capital Employed (ROCE) reaching a high of 13.75% in the half-year period and Profit After Tax (PAT) for nine months rising to ₹6.36 crores.

These figures mark a significant improvement compared to the company’s longer-term performance, where net sales have grown at a modest annual rate of 6.90% and operating profit has barely increased by 0.77% over the past five years. The consistent positive results over the last five consecutive quarters indicate a stabilising financial trend, which supports the upgraded rating.

Additionally, the company maintains a very conservative capital structure with an average Debt to Equity ratio of zero, underscoring its low financial risk profile. Majority ownership remains with promoters, which often aligns management interests with shareholder value creation.

Valuation Remains Fair but Expensive Relative to Growth

Despite the positive technical and financial signals, valuation metrics temper enthusiasm somewhat. Resonance Specialities trades at a Price to Book (P/B) ratio of 1.8, which is considered expensive relative to its historical valuations and some peers in the specialty chemicals sector. The company’s Return on Equity (ROE) stands at 11.3%, which, while respectable, does not fully justify the premium valuation.

On the other hand, the Price/Earnings to Growth (PEG) ratio is a low 0.2, reflecting the market’s recognition of the company’s recent profit growth of 64.8% over the past year. This suggests that while the stock is priced on the higher side, the earnings momentum could support further re-rating if sustained.

Comparing stock returns to the broader market, Resonance Specialities has underperformed the Sensex over longer periods. The stock delivered a 4.53% return year-to-date and over one year, whereas the Sensex gained 9.06% in the same timeframe. Over three and five years, the stock’s returns were negative (-13.47% and -31.53% respectively), contrasting sharply with the Sensex’s strong gains of 40.07% and 78.47%. However, the ten-year return of 183.92% remains commendable, though still below the Sensex’s 226.30%.

Quality Assessment and Market Position

Resonance Specialities operates in the specialty chemicals industry, a sector known for its cyclical nature and sensitivity to raw material prices and regulatory changes. The company’s Mojo Score currently stands at 58.0, with a Mojo Grade upgraded to Hold from Sell. This reflects a moderate quality rating, indicating that while the company has stabilised its operations and financials, it has yet to demonstrate the consistent high-quality growth that would warrant a Buy or Strong Buy rating.

The company’s market capitalisation grade is 4, placing it in the micro-cap to small-cap category, which often entails higher volatility and risk. Investors should weigh these factors alongside the improving technical and financial trends when considering exposure.

Conclusion: A Balanced Upgrade Reflecting Mixed Signals

The upgrade of Resonance Specialities Ltd from Sell to Hold is a reflection of a more balanced investment case. The technical indicators have shifted favourably, signalling a mild bullish trend that could support price appreciation in the near term. Financially, the company’s recent quarters have shown encouraging growth and profitability, supported by a clean balance sheet and promoter backing.

However, the company’s long-term growth remains subdued, and valuation metrics suggest the stock is priced at a premium relative to its historical performance and sector peers. The mixed technical signals, including some bearish elements, also counsel caution.

Overall, the Hold rating indicates that while Resonance Specialities is no longer a sell candidate, investors should monitor upcoming quarterly results and market developments closely before considering a more aggressive position.

Only Rs. 9,999 - Get MojoOne + Stock of the Week for 1 Year (MRP = Rs. 34,999) Start Saving Now →