Unjha Formulations Ltd Upgraded to Hold as Technicals Improve Amid Mixed Financials

Quality Assessment: Mixed Signals Amidst Financial Performance

Unjha Formulations operates within the Pharmaceuticals & Biotechnology industry, a sector known for its volatility and growth potential. The company’s quality rating remains cautious due to its weak long-term fundamental strength. Over the past five years, operating profits have grown at a compound annual growth rate (CAGR) of 14.64%, which, while positive, is modest relative to sector leaders. Furthermore, the company’s ability to service debt is notably weak, with an average EBIT to interest coverage ratio of just 0.47, signalling potential financial strain in adverse conditions.

However, recent quarterly results for Q2 FY25-26 have shown encouraging signs. The company reported its highest quarterly PBDIT at ₹0.79 crore and PBT less other income at ₹0.76 crore, alongside a 9-month PAT of ₹0.80 crore. These figures indicate operational improvements and a positive trajectory in profitability, which partially offsets concerns about its longer-term financial robustness.

Valuation: Attractive Metrics Amidst Discounted Pricing

Valuation metrics have been a key driver behind the upgrade. Unjha Formulations boasts a return on equity (ROE) of 32.5%, a figure that is very attractive within its peer group. The stock trades at a price-to-book (P/B) ratio of 3.5, which, while not low in absolute terms, represents a discount compared to the average historical valuations of its pharmaceutical peers. This discounting suggests the market has not fully priced in the company’s recent financial improvements.

Moreover, the company’s price-to-earnings-to-growth (PEG) ratio stands at a low 0.4, signalling that earnings growth is not yet fully reflected in the stock price. This metric supports the view that the stock is undervalued relative to its growth prospects, justifying a Hold rating rather than a Sell.

Technical Trend: Shift from Sideways to Mildly Bullish

The most significant catalyst for the rating upgrade is the change in technical indicators. The technical trend has shifted from a sideways pattern to a mildly bullish stance, suggesting improving market sentiment. Daily moving averages have turned mildly bullish, and the KST (Know Sure Thing) indicator on a weekly basis is bullish, although monthly KST remains mildly bearish. This mixed but improving technical picture indicates potential for upward momentum in the near term.

Other technical signals present a nuanced view: the MACD remains mildly bearish on both weekly and monthly charts, while RSI shows no clear signal. Bollinger Bands indicate sideways movement weekly but bearish monthly trends. The Dow Theory does not currently indicate a clear trend on either timeframe. Overall, the technical summary points to a cautious but positive shift, supporting the upgrade to Hold.

Financial Trend: Positive Quarterly Results but Market Underperformance

Despite the positive quarterly financial results, Unjha Formulations has underperformed the broader market over the last year. The stock has generated a negative return of -18.57% over 12 months, compared to a 7.62% gain in the Sensex and a 5.24% return in the BSE500 index. Year-to-date, the stock’s return is down 19.61%, while the Sensex has gained 8.39%. This divergence highlights investor caution and the need for sustained improvement to regain confidence.

Longer-term returns tell a more encouraging story. Over three years, the stock has delivered a 67.21% return, significantly outperforming the Sensex’s 38.54%. Over five years, the outperformance is even more pronounced, with a 195.05% gain versus the Sensex’s 77.88%. However, the 10-year return of 55.61% lags the Sensex’s 224.76%, reflecting periods of volatility and underperformance.

Market Capitalisation and Shareholding

Unjha Formulations holds a Market Cap Grade of 4, indicating a micro-cap status within the Pharmaceuticals & Biotechnology sector. The majority of shareholders are non-institutional, which can contribute to higher volatility and less predictable trading patterns. The stock closed at ₹24.43 on 30 December 2025, down 2.24% from the previous close of ₹24.99. The 52-week price range is ₹19.99 to ₹35.18, reflecting significant price fluctuations over the year.

Summary of Rating Change

The upgrade from Sell to Hold is primarily driven by the technical grade improvement, shifting from sideways to mildly bullish, and the attractive valuation metrics that suggest the stock is undervalued relative to its earnings growth potential. While the company’s quality and financial trend indicators remain mixed, recent quarterly earnings growth and operational improvements provide a foundation for cautious optimism.

Investors should note the stock’s underperformance relative to the broader market over the past year, signalling that risks remain. The weak debt servicing ability and modest long-term profit growth temper enthusiasm. However, the improved technical outlook and valuation discount justify a Hold rating, signalling that the stock may be poised for a recovery phase but is not yet a definitive buy.

Outlook and Investor Considerations

For investors, the Hold rating suggests a wait-and-watch approach. The company’s recent financial results and improved technical indicators offer a potential entry point, but the stock’s historical volatility and underperformance caution against aggressive buying. The low PEG ratio and strong ROE indicate that if the company can sustain its earnings growth and improve debt servicing, there may be upside potential.

Monitoring upcoming quarterly results and any shifts in technical momentum will be crucial. Additionally, investors should consider the broader sector dynamics and peer valuations to assess whether Unjha Formulations can regain market favour. Given the micro-cap nature and non-institutional shareholder dominance, liquidity and price swings may remain significant factors.

Conclusion

Unjha Formulations Ltd’s upgrade to Hold reflects a balanced reassessment of its investment profile. While challenges persist in long-term fundamentals and market performance, the company’s improved technical trend and attractive valuation metrics provide a foundation for cautious optimism. Investors should weigh these factors carefully, recognising the potential for recovery alongside the risks inherent in a micro-cap pharmaceutical stock.

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