STEL Holdings Ltd Upgraded to Hold as Technicals Improve and Financials Show Strength

Technical Trends Shift to Mildly Bullish

The most significant driver behind the upgrade is the change in the technical grade. STEL Holdings’ technical trend has shifted from a sideways pattern to a mildly bullish stance. This is supported by daily moving averages which now indicate a mildly bullish momentum, suggesting short-term price support. However, the weekly and monthly MACD remain mildly bearish, signalling some caution among traders. The Relative Strength Index (RSI) on both weekly and monthly charts shows no clear signal, indicating a neutral momentum.

Bollinger Bands on weekly and monthly timeframes remain bearish, reflecting recent price volatility and potential resistance levels. Meanwhile, the KST (Know Sure Thing) indicator presents a bullish signal on the weekly chart but mildly bearish on the monthly, highlighting mixed momentum across different time horizons. Dow Theory analysis shows no clear trend weekly but a bullish trend monthly, reinforcing the mild optimism in the medium term. On balance, the technical picture is cautiously positive, justifying the upgrade from a purely technical perspective.

Financial Trend: Positive Quarterly Performance Bolsters Confidence

STEL Holdings reported a strong financial performance in Q2 FY25-26, which has been a key factor in the rating revision. The company’s operating cash flow for the year reached a peak of ₹43.18 crores, indicating robust cash generation capabilities. Net sales for the quarter stood at ₹9.07 crores, marking a substantial 71.0% growth compared to the previous four-quarter average. Profit before tax excluding other income (PBT less OI) also rose by 66.4% to ₹8.87 crores, signalling improved operational efficiency.

Promoter confidence has also strengthened, with promoters increasing their stake by 0.5% over the previous quarter to hold 71.33% of the company. This heightened promoter holding is often interpreted as a positive signal about the company’s future prospects. Furthermore, STEL Holdings has consistently outperformed the BSE500 index over the last three years, delivering an impressive 188.10% return compared to the index’s 36.79% during the same period. The one-year return of 8.72% also slightly exceeds the Sensex’s 8.65% gain, underscoring steady relative performance.

Quality Assessment: Low Leverage and Promoter Strength

From a quality standpoint, STEL Holdings maintains a very low debt-to-equity ratio, averaging zero over recent periods. This conservative capital structure reduces financial risk and enhances the company’s ability to weather economic downturns. The rising promoter stake further reinforces the quality narrative, as insiders appear confident in the company’s strategic direction and growth potential.

However, the company’s return on equity (ROE) remains modest at 0.9%, which is relatively low for the NBFC sector. This suggests that while the company is financially stable, its efficiency in generating shareholder returns is limited. The operating profit growth rate over the past five years has been a moderate 15.99% annually, indicating steady but unspectacular expansion. These factors temper the overall quality rating, supporting a Hold rather than a Buy recommendation.

Valuation: Premium Pricing Amidst Modest Profit Growth

Valuation metrics present a mixed picture. STEL Holdings trades at a price-to-book (P/B) ratio of 0.4, which is considered very expensive relative to its peers’ historical averages. Despite this premium, the company’s profit growth has been relatively modest, with a 7.6% increase over the past year. This disparity is reflected in a high PEG ratio of 6.1, indicating that the stock price may be overvalued relative to its earnings growth potential.

Such valuation levels suggest that investors are pricing in significant future growth or strategic advantages that have yet to fully materialise. Given the current financial and operational metrics, this premium valuation warrants caution and supports the Hold rating. Investors should weigh the company’s strong cash flow and promoter confidence against the stretched valuation multiples.

Stock Price Performance and Market Context

STEL Holdings’ current market price stands at ₹427.25, down 5.47% on the day, with a 52-week high of ₹635.00 and a low of ₹310.20. The stock has underperformed the Sensex over the short term, with a one-month return of -20.55% compared to the Sensex’s -1.98%, and a year-to-date decline of -13.47% versus the Sensex’s -2.32%. However, over longer horizons, the stock has delivered exceptional returns, with a five-year gain of 405.32% and a ten-year return of 1409.72%, far outpacing the Sensex’s respective 68.52% and 240.06% gains.

This long-term outperformance highlights the company’s ability to generate value over extended periods despite short-term volatility. The recent downgrade in technical indicators and price correction may offer a more attractive entry point for investors who believe in the company’s fundamentals and growth trajectory.

Conclusion: Balanced Outlook Supports Hold Rating

The upgrade of STEL Holdings Ltd’s investment rating from Sell to Hold reflects a balanced assessment of its current position. The mildly bullish technical trend and strong quarterly financial results provide positive momentum. Meanwhile, the company’s low leverage and rising promoter confidence underpin its quality credentials. However, modest profitability metrics and a stretched valuation multiple caution against a more aggressive Buy rating at this stage.

Investors should consider STEL Holdings as a stable, moderately promising NBFC with a history of consistent returns and improving technical signals. The Hold rating suggests that while the stock is not currently undervalued, it remains a viable option for those seeking exposure to a financially sound company with long-term growth potential.

Unlock special upgrade rates for a limited period. Start Saving Now →