S H Kelkar & Company Ltd Rating Upgraded to Sell Amid Mixed Technical and Financial Signals

Quality Assessment: Persistent Challenges Amid Moderate Strengths

The company’s quality metrics continue to reflect underlying operational difficulties. Over the last five years, operating profit has grown at a modest annual rate of 5.43%, signalling subdued long-term growth momentum. The recent quarterly results for Q3 FY25-26 have been disappointing, with Profit Before Tax (PBT) excluding other income falling sharply by 44.6% to ₹14.85 crores compared to the previous four-quarter average. Net Profit After Tax (PAT) also declined by 54.4% to ₹10.66 crores in the same period.

Return on Capital Employed (ROCE) remains low, with the half-year figure at 7.42%, underscoring limited efficiency in capital utilisation. While the company maintains a relatively low average Debt to Equity ratio of 0.50 times, which is favourable for financial stability, this has not translated into robust profitability or growth. The majority shareholding remains with promoters, indicating stable ownership but limited external institutional influence to drive strategic change.

Valuation: Attractive Discounts Amid Profit Declines

Despite the weak financial performance, valuation metrics present a more positive picture. S H Kelkar & Co. trades at an Enterprise Value to Capital Employed ratio of 1.5, which is considered attractive relative to its peers in the Specialty Chemicals sector. This discount in valuation reflects market scepticism but also offers potential upside if operational improvements materialise.

The current share price stands at ₹168.60, up 4.62% on the day, with a 52-week range between ₹135.35 and ₹275.20. The stock’s subdued valuation is partly justified by a 33.9% decline in profits over the past year and a negative one-year return of -22.12%, which significantly underperforms the BSE Sensex’s 7.07% gain over the same period. However, the stock’s five-year return of 35.15% is not far behind the Sensex’s 64.75%, suggesting some resilience over the longer term.

Financial Trend: Negative Momentum Persists Despite Some Stability

The financial trend for S H Kelkar & Co. remains challenging. The company’s quarterly results have deteriorated, with both PBT and PAT showing steep declines compared to recent averages. The operating profit growth rate of 5.43% over five years is below sector expectations, and the ROCE figure of 7.6% remains at the lower end of acceptable levels for specialty chemical companies.

Returns over various time frames highlight the underperformance relative to benchmarks. The stock has generated a negative return of 22.12% over the past year, significantly lagging the Sensex’s positive 7.07%. Over three years, the stock’s return of 37.30% also trails the Sensex’s 38.13%, and over ten years, the stock has declined by 33.83% while the Sensex surged 239.52%. These figures underscore the company’s struggle to deliver consistent shareholder value.

Technical Analysis: Signs of Stabilisation Prompt Upgrade

The primary driver behind the recent upgrade from Strong Sell to Sell is the improvement in technical indicators. The technical grade has shifted from bearish to mildly bearish, reflecting a less negative market sentiment. Key technical signals include:

• MACD remains bearish on both weekly and monthly charts, indicating ongoing downward momentum but with less intensity.
• RSI shows no clear signal on weekly and monthly timeframes, suggesting a neutral momentum phase.
• Bollinger Bands are mildly bearish, indicating reduced volatility and a potential consolidation phase.
• Daily moving averages also reflect a mildly bearish stance, signalling that short-term price trends are stabilising.
• KST (Know Sure Thing) indicator is bearish weekly but only mildly bearish monthly, hinting at a possible bottoming out.
• Dow Theory analysis shows mildly bearish weekly trends and no clear monthly trend, reinforcing the notion of a technical pause.
• On-Balance Volume (OBV) is mildly bullish weekly, suggesting some accumulation by investors despite the broader downtrend.

These mixed but improving technical signals have encouraged analysts to moderate their stance, upgrading the rating to Sell from Strong Sell. The stock’s recent price action, with a day high of ₹169.70 and low of ₹156.85, and a closing price of ₹168.60, supports this view of tentative recovery.

Outlook and Investor Considerations

While the upgrade to Sell from Strong Sell signals a slight improvement in sentiment, investors should remain cautious. The company’s fundamental challenges, including weak profitability, low ROCE, and underwhelming long-term growth, continue to weigh heavily on its prospects. The attractive valuation may offer some margin of safety, but the stock’s historical underperformance relative to the Sensex and sector peers suggests that a turnaround is not imminent.

Technical indicators imply that the stock may be entering a consolidation phase, which could provide a platform for recovery if accompanied by operational improvements. However, the absence of strong bullish signals means that investors should monitor quarterly results closely, especially for signs of margin expansion and revenue growth acceleration.

Given the mixed signals, the current Sell rating reflects a balanced view that recognises both the risks and the potential for modest recovery. Investors with a higher risk tolerance might consider accumulating on dips, while more conservative investors may prefer to wait for clearer evidence of financial turnaround before committing capital.

Summary of Ratings and Scores

S H Kelkar & Company Ltd’s MarketsMOJO score currently stands at 34.0, categorised as Sell, upgraded from a previous Strong Sell rating. The Market Cap Grade is 3, indicating a mid-tier market capitalisation within its sector. The technical grade improvement was the key catalyst for the rating change on 6 February 2026, reflecting a shift from bearish to mildly bearish technical trends.

Overall, the company remains a challenging proposition for investors, with valuation attractiveness tempered by weak financial trends and only tentative technical recovery.

Conclusion

The recent upgrade in S H Kelkar & Company Ltd’s investment rating is primarily driven by stabilising technical indicators amid persistent financial headwinds. While the company’s quality and financial trends remain under pressure, its valuation discounts and improved technical outlook have prompted a more measured Sell rating. Investors should weigh these factors carefully, considering both the risks of continued underperformance and the potential for recovery if operational metrics improve.

As always, a thorough analysis of peer performance and sector dynamics is advisable before making investment decisions in the Specialty Chemicals space.

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