Sulabh Engineers & Services Ltd Upgraded to Sell on Technical Improvements Despite Weak Fundamentals

Quality Assessment: Persistent Fundamental Weakness

Despite the upgrade in rating, Sulabh Engineers continues to exhibit weak long-term fundamental strength. The company’s average Return on Equity (ROE) remains low at 4.24%, signalling limited profitability relative to shareholder equity. This figure is well below industry averages for NBFCs, which typically range higher, reflecting more efficient capital utilisation.

Moreover, the company’s net sales have declined at an annualised rate of -2.91%, indicating contraction rather than growth in its core business operations. The latest quarterly results for Q2 FY25-26 were largely flat, offering no significant improvement in revenue or profitability. This stagnation has contributed to the company’s underperformance relative to broader market benchmarks.

Over the past year, Sulabh Engineers has generated a negative return of -46.07%, starkly contrasting with the Sensex’s positive 6.66% return over the same period. The stock has also underperformed the BSE500 index consistently over the last three years, underscoring its struggles to keep pace with the broader market.

Valuation: Attractive but Reflective of Risks

On the valuation front, Sulabh Engineers presents a mixed picture. The company’s Price to Book (P/B) ratio stands at a low 0.7, signalling that the stock is trading at a discount relative to its book value. This valuation is considered very attractive, especially when compared to peers in the NBFC sector, many of which trade at higher multiples.

Additionally, the company’s ROE of 6.7% on a more recent basis suggests some improvement in profitability metrics, albeit still modest. The Price/Earnings to Growth (PEG) ratio is an exceptionally low 0.1, indicating that the stock’s price is not fully reflecting its earnings growth potential, which has been buoyed by a 70.6% rise in profits over the past year despite the share price decline.

However, these valuation metrics must be interpreted cautiously given the company’s weak sales growth and overall financial trend. The discount in valuation likely reflects market concerns about the sustainability of earnings and the company’s ability to generate consistent returns.

Financial Trend: Flat Performance Amidst Profit Growth

The financial trend for Sulabh Engineers remains largely flat, with the company reporting no significant growth in its latest quarterly results. While net sales have declined over the long term, the company has managed to increase profits by 70.6% in the past year, a somewhat contradictory development that suggests cost efficiencies or other non-operational factors may be supporting earnings.

Despite this profit growth, the stock’s return over the last year remains deeply negative at -46.07%, reflecting a disconnect between market sentiment and the company’s earnings performance. This divergence may be attributed to concerns over the sustainability of profit growth and the weak sales trajectory.

Long-term returns paint a challenging picture: over the last three years, the stock has lost 45.33%, while the Sensex gained 37.76%. Over a decade, the stock has plummeted by 97.37%, compared to the Sensex’s robust 244.38% gain, highlighting the company’s persistent underperformance.

Technical Analysis: Key Driver of Upgrade

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in technical indicators, which have shifted from bearish to mildly bearish territory. This change suggests a potential stabilisation or modest recovery in the stock’s price momentum.

Key technical signals include a mildly bullish Moving Average Convergence Divergence (MACD) on the weekly chart, although the monthly MACD remains bearish. The Relative Strength Index (RSI) on both weekly and monthly charts shows no clear signal, indicating a neutral momentum environment.

Bollinger Bands remain mildly bearish on both weekly and monthly timeframes, while daily moving averages also suggest mild bearishness. The Know Sure Thing (KST) indicator is bearish on both weekly and monthly charts, and Dow Theory analysis shows no definitive trend on either timeframe.

Price action has been relatively stable, with the current price at ₹2.40, slightly up from the previous close of ₹2.38. The stock’s 52-week range is ₹2.03 to ₹4.90, indicating significant volatility and a substantial decline from its highs.

Shareholding and Market Capitalisation

Sulabh Engineers is predominantly held by non-institutional shareholders, which may contribute to higher volatility and less stable investor support. The company’s market capitalisation grade is rated 4, indicating a relatively small market cap compared to larger NBFC peers, which can affect liquidity and investor interest.

The stock’s day change on 5 February 2026 was a modest 0.84%, reflecting limited trading momentum despite the recent rating upgrade.

Investment Outlook

While the upgrade to Sell from Strong Sell reflects a slight improvement in technical outlook, the fundamental challenges facing Sulabh Engineers remain significant. Investors should weigh the company’s attractive valuation and recent profit growth against its weak sales trend, low ROE, and persistent underperformance relative to market benchmarks.

Given the mixed signals, the stock may appeal to value-oriented investors willing to tolerate volatility and fundamental risks in anticipation of a turnaround. However, cautious investors may prefer to explore alternatives with stronger financial trends and more robust technical momentum.

Summary of Ratings and Scores

The company’s current Mojo Score is 31.0, with a Mojo Grade of Sell, upgraded from Strong Sell on 4 February 2026. The technical grade improvement was the key driver behind this change, while quality and financial trend grades remain subdued. Market cap grade stands at 4, reflecting the company’s smaller size within the NBFC sector.

Conclusion

Sulabh Engineers & Services Ltd’s recent rating upgrade highlights the importance of technical analysis in investment decisions, even when fundamental metrics remain weak. The stock’s improved technical indicators suggest a potential bottoming out, but investors should remain vigilant given the company’s ongoing financial challenges and historical underperformance.

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