Ugar Sugar Works Ltd. Upgraded to Sell on Improved Financials and Valuation

Financial Trend Improvement Spurs Upgrade

The primary catalyst behind the upgrade is the marked improvement in Ugar Sugar Works’ financial trend. The company’s financial grade has risen from a flat score of 0 to a positive 8 over the last three months, signalling a turnaround in operational performance. The quarter ending December 2025 saw net sales for the latest six months reach ₹738.43 crores, representing a robust growth of 46.8% compared to previous periods.

Profitability metrics have also surged impressively. Profit Before Tax excluding other income (PBT less OI) for the quarter stood at ₹15.77 crores, an extraordinary increase of 887.5% relative to the average of the preceding four quarters. Similarly, Profit After Tax (PAT) rose by 466.8% to ₹13.76 crores, underscoring a significant recovery in bottom-line performance. Operating profit margin to net sales reached a peak of 11.38%, highlighting improved operational efficiency.

However, some challenges remain. Interest expenses for the nine months increased by 23.06% to ₹43.12 crores, reflecting the company’s high leverage. Additionally, quarterly net sales declined by 17% compared to the previous four-quarter average, indicating some volatility in revenue streams.

Valuation Metrics Turn More Attractive

Alongside financial improvements, Ugar Sugar Works’ valuation grade has been upgraded from Attractive to Very Attractive. The company currently trades at a price-to-earnings (PE) ratio of 22.04, which is favourable compared to many peers in the sugar sector. Its price-to-book value stands at 2.43, while the enterprise value to EBITDA ratio is 9.28, indicating a reasonable valuation relative to earnings before interest, tax, depreciation and amortisation.

Notably, the company’s PEG ratio is a low 0.16, suggesting that the stock is undervalued relative to its earnings growth potential. Return on capital employed (ROCE) is recorded at 7.83%, and return on equity (ROE) at 11.04%, both reflecting moderate efficiency in capital utilisation. Enterprise value to capital employed is also low at 1.41, reinforcing the stock’s appeal from a valuation standpoint.

When compared with peers such as Godavari Biorefineries and Dhampur Sugar, Ugar Sugar Works’ valuation multiples are competitive, supporting the upgrade in its rating.

Quality and Technical Parameters Remain Challenging

Despite the positive shifts in financial trend and valuation, the company’s overall quality grade remains weak, contributing to the cautious Sell rating. Ugar Sugar Works is classified as a high-debt company, with an average debt-to-equity ratio of 3.33 times, which raises concerns about financial risk and long-term sustainability.

Operating profit has declined at an annualised rate of 6.58% over the past five years, indicating structural challenges in growth. The company has consistently underperformed the benchmark indices, with a one-year return of -18.59% compared to the Sensex’s 9.66% gain, and a three-year return of -63.18% versus Sensex’s 35.81% appreciation. This persistent underperformance weighs on the technical outlook and investor sentiment.

Stock Price and Market Performance

Ugar Sugar Works’ stock price closed at ₹37.10 on 17 February 2026, up marginally by 0.35% from the previous close of ₹36.97. The stock has traded within a 52-week range of ₹35.77 to ₹53.52, reflecting significant volatility. Recent trading highs and lows for the day were ₹37.68 and ₹36.90 respectively.

Over longer periods, the stock’s returns have been mixed. While it has generated a strong 145.7% return over five years, it has lagged the Sensex’s 59.83% gain over the same period. However, the 10-year return of 208.14% trails the Sensex’s 259.08%, highlighting inconsistent performance relative to the broader market.

Outlook and Analyst Perspective

The upgrade to Sell from Strong Sell reflects a nuanced view of Ugar Sugar Works’ prospects. The company’s recent financial turnaround and attractive valuation multiples provide a foundation for cautious optimism. However, the high leverage, weak long-term growth trends and underwhelming technical performance temper enthusiasm.

Investors are advised to monitor the company’s ability to sustain revenue growth and improve profitability while managing debt levels. The current rating suggests that while the stock is no longer a strong sell, it remains a cautious sell given the risks involved.

Summary of Key Metrics

Ugar Sugar Works’ current Mojo Score stands at 32.0, with the Mojo Grade upgraded to Sell from Strong Sell on 16 February 2026. The company’s market capitalisation grade is 4, reflecting its mid-sized presence in the sugar sector. Despite the recent upgrade, the stock’s performance remains subdued relative to the benchmark indices, with a year-to-date return of -13.96% versus Sensex’s -2.28%.

Majority shareholding remains with non-institutional investors, which may influence liquidity and trading dynamics. The company’s financial turnaround in Q3 FY25-26, combined with a very attractive valuation, offers a cautiously positive outlook, but investors should remain vigilant given the high debt and historical underperformance.

Conclusion

Ugar Sugar Works Ltd.’s upgrade to a Sell rating reflects a balance between improving financial fundamentals and persistent structural challenges. The company’s strong quarterly earnings growth and attractive valuation multiples have improved its investment appeal, yet high leverage and weak long-term growth trends continue to constrain its outlook. Investors should weigh these factors carefully when considering exposure to this sugar sector stock.

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