STEL Holdings Ltd Downgraded to Sell Amid Mixed Financials and Weak Technicals

Quality Assessment: Mixed Financial Performance

STEL Holdings has demonstrated a somewhat mixed financial quality profile. The company reported positive results in Q2 FY25-26, with net sales reaching ₹9.07 crores, marking a robust 71.0% growth compared to the previous four-quarter average. Profit before tax (PBT) excluding other income also rose by 66.4% to ₹8.87 crores, while operating cash flow for the year peaked at ₹43.18 crores, the highest recorded.

However, the long-term growth trajectory remains a concern. Operating profit has grown at a modest annual rate of 15.99% over the past five years, which is relatively subdued for an NBFC in a competitive sector. Return on equity (ROE) stands at a low 0.9%, signalling limited profitability relative to shareholder equity. These factors contribute to a cautious view on the company’s quality grade.

Valuation: Premium Pricing Raises Concerns

Despite the positive quarterly performance, STEL Holdings is currently trading at a premium valuation that appears expensive relative to its fundamentals and peers. The stock’s price-to-book (P/B) ratio is 0.4, which is considered very high given the company’s low ROE and modest profit growth. Additionally, the price/earnings to growth (PEG) ratio stands at 5.5, indicating that the stock price is not well supported by earnings growth expectations.

Over the past year, the stock has generated a negative return of -1.92%, while profits have only increased by 7.6%. This disconnect between price and earnings growth has contributed to the downgrade in valuation grade, signalling that investors may be overpaying for the stock relative to its financial performance.

Financial Trend: Positive Quarterly but Weak Long-Term Growth

The financial trend for STEL Holdings presents a nuanced picture. While the recent quarter showed strong sales and profit growth, the company’s longer-term financial trajectory is less encouraging. The operating profit’s annual growth rate of 15.99% over five years is modest, especially when compared to the sector’s growth averages.

Moreover, the company maintains a very low debt-to-equity ratio, averaging zero, which is a positive sign of financial prudence and low leverage risk. Promoter confidence has also increased, with promoters raising their stake by 0.5% in the last quarter to hold 71.33% of the company, signalling faith in the company’s future prospects despite the rating downgrade.

Technical Analysis: Downgrade Driven by Weakening Momentum

The most significant factor behind the downgrade to Sell is the deterioration in technical indicators. The technical grade has shifted from mildly bullish to sideways, reflecting a loss of upward momentum in the stock price. Key technical signals include:

• MACD: Both weekly and monthly charts show mildly bearish signals, indicating weakening momentum.


• RSI: No clear signal on weekly or monthly timeframes, suggesting indecision among traders.


• Bollinger Bands: Bearish on both weekly and monthly charts, pointing to increased volatility and downward pressure.


• Moving Averages: Daily moving averages remain mildly bullish, but this is insufficient to offset broader bearish trends.


• KST Indicator: Weekly readings are bullish, but monthly readings are mildly bearish, reflecting mixed momentum.


• Dow Theory: Weekly mildly bearish, monthly bullish, indicating conflicting signals across timeframes.


• On-Balance Volume (OBV): Weekly mildly bearish, monthly showing no clear trend, suggesting weak volume support for price moves.

These mixed but predominantly negative technical signals have contributed heavily to the downgrade, as the stock’s price has declined 3.15% on the day of the rating change, closing at ₹387.35 from a previous close of ₹399.95. The 52-week high remains ₹635.00, while the 52-week low is ₹310.20, highlighting the stock’s recent volatility and downward pressure.

Comparative Returns: Underperformance Against Sensex

STEL Holdings’ returns have lagged the broader market benchmark, the Sensex, over multiple time horizons. Over the past week, the stock declined by 9.95%, significantly underperforming the Sensex’s 1.77% drop. Over one month, the stock fell 27.97% compared to the Sensex’s 3.56% decline. Year-to-date, the stock is down 21.55%, while the Sensex has dropped 3.89%.

Even over the one-year period, STEL Holdings generated a negative return of -1.92%, whereas the Sensex gained 8.01%. However, the company has delivered strong long-term returns, with a 3-year return of 165.13%, 5-year return of 323.56%, and an impressive 10-year return of 1350.75%, all substantially outperforming the Sensex over these periods.

Summary and Outlook

In summary, the downgrade of STEL Holdings Ltd from Hold to Sell by MarketsMOJO reflects a confluence of factors. While the company has shown encouraging quarterly financial results and benefits from low leverage and rising promoter confidence, its long-term growth remains modest, and valuation metrics suggest the stock is expensive relative to earnings and book value.

The technical landscape has shifted unfavourably, with multiple indicators signalling weakening momentum and increased volatility. This technical deterioration, combined with underperformance against the Sensex in recent months, has led to a more cautious stance on the stock.

Investors should weigh the company’s strong historical returns and recent operational improvements against the current valuation premium and technical risks. The downgrade to Sell suggests that, for now, the stock may face headwinds and that alternative investment opportunities within the NBFC sector or broader market may offer better risk-adjusted returns.

About MarketsMOJO Ratings

MarketsMOJO’s rating system integrates multiple parameters including quality, valuation, financial trends, and technical analysis to provide a comprehensive investment grade. STEL Holdings’ current Mojo Score stands at 47.0, with a Mojo Grade of Sell, down from a previous Hold rating. The company’s market cap grade is 4, reflecting its micro-cap status within the NBFC sector.

Key Data Snapshot:

• Current Price: ₹387.35


• Previous Close: ₹399.95


• 52-Week High / Low: ₹635.00 / ₹310.20


• Promoter Holding: 71.33% (increased by 0.5% last quarter)


• Operating Cash Flow (Yearly): ₹43.18 crores (highest recorded)


• Net Sales (Quarterly): ₹9.07 crores (71.0% growth)


• PBT less Other Income (Quarterly): ₹8.87 crores (66.4% growth)


• Debt to Equity Ratio: 0 (average)

Investors should continue to monitor quarterly results, valuation shifts, and technical signals closely to reassess the stock’s outlook in the coming months.

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