V B Desai Financial Services Ltd Upgraded to Sell on Improved Technicals and Valuation

Technical Trends Shift to Mildly Bearish

The most significant driver behind the upgrade is the change in the technical grade from bearish to mildly bearish. Weekly and monthly technical indicators present a mixed but improving picture. The Moving Average Convergence Divergence (MACD) remains bearish on a weekly basis but has softened to mildly bearish monthly. Similarly, the Relative Strength Index (RSI) shows no clear signal on both weekly and monthly charts, indicating a neutral momentum.

Bollinger Bands have turned bullish on the weekly timeframe, suggesting increased price volatility with upward bias, although the monthly view remains mildly bearish. Daily moving averages continue to show mild bearishness, but the overall trend is less negative than before. The Know Sure Thing (KST) indicator aligns with this, showing bearishness weekly but only mildly bearish monthly. Dow Theory readings are mildly bullish weekly but mildly bearish monthly, reflecting short-term optimism tempered by longer-term caution.

These technical nuances have led to a recalibration of the stock’s momentum, supporting a less severe sell rating. The stock’s price action today, with a high of ₹24.75 and a low of ₹19.05, closing at ₹24.69, reflects this improved technical sentiment.

Valuation Upgraded to Very Attractive

Alongside technical improvements, the valuation grade has been upgraded from attractive to very attractive. The company currently trades at a price-to-earnings (PE) ratio of 13.00, which is significantly lower than many of its NBFC peers, some of whom trade at PE multiples exceeding 60 or even 170. The price-to-book (P/B) value stands at a modest 0.90, indicating the stock is trading below its book value, a classic sign of undervaluation.

Enterprise value to EBIT and EBITDA ratios both sit at 10.53, while the EV to capital employed is an exceptionally low 0.89, further underscoring the stock’s cheap valuation relative to its earnings and capital base. The PEG ratio, which adjusts PE for earnings growth, is a mere 0.22, signalling that the stock is undervalued even after accounting for growth prospects.

Return on capital employed (ROCE) is low at 0.93%, but return on equity (ROE) is a more encouraging 6.89%, reflecting some improvement in profitability. Compared to peers such as Mufin Green and Arman Financial, which are classified as very expensive, V B Desai Financial Services Ltd offers a compelling value proposition for investors willing to tolerate some risk.

Financial Trend Remains Flat with Mixed Signals

Despite the positive shifts in technicals and valuation, the company’s financial performance remains subdued. The latest quarterly results for Q3 FY25-26 were flat, with no significant growth in net sales or profits. The company’s long-term fundamentals remain weak, with an average ROE of just 3.94% and net sales growing at a modest annual rate of 7.12%.

Over the past year, the stock has underperformed the broader market, delivering a negative return of -22.48% compared to the BSE500’s positive 11.06%. However, it is notable that profits have risen by 32% over the same period, suggesting some operational improvement that has yet to translate into sustained share price gains.

Longer-term returns tell a more positive story, with the stock delivering 130.10% over three years and an impressive 502.20% over five years, far outpacing the Sensex’s respective returns of 36.73% and 60.30%. This disparity highlights the stock’s volatility and the potential for recovery if financial trends improve.

Quality Assessment and Shareholding Pattern

The company’s quality grade remains a concern, with weak long-term fundamental strength and inconsistent growth metrics. The majority of shareholders are non-institutional, which can sometimes lead to higher volatility and less stable ownership structures. This factor, combined with the flat financial trend, tempers enthusiasm despite the improved technical and valuation outlook.

Market Performance and Price Action

The stock’s recent price action has been volatile but encouraging. After hitting a 52-week low of ₹15.30, it has rebounded to a current price of ₹24.69, still well below its 52-week high of ₹44.64. The one-week return of 28.26% starkly contrasts with the Sensex’s decline of 1.14% over the same period, signalling renewed investor interest.

Monthly returns of 9.78% also outpace the Sensex’s negative 1.20%, while year-to-date returns are positive at 2.79% compared to the Sensex’s -3.04%. However, the one-year return remains negative at -22.48%, reflecting the stock’s recent struggles.

These mixed signals suggest that while the stock is regaining momentum, investors should remain cautious given the underlying financial and quality concerns.

Outlook and Investment Considerations

In summary, the upgrade of V B Desai Financial Services Ltd’s rating from Strong Sell to Sell is driven primarily by improved technical indicators and a very attractive valuation profile. However, the company’s flat financial performance, weak long-term fundamentals, and underwhelming quality metrics continue to weigh on its outlook.

Investors considering this stock should weigh the potential for a technical rebound and value-driven gains against the risks posed by inconsistent earnings growth and a challenging competitive landscape in the NBFC sector. The stock’s recent outperformance relative to the Sensex is encouraging but not yet sufficient to warrant a more positive rating.

Given these factors, the Sell rating reflects a cautious stance, recognising the stock’s potential upside while acknowledging significant headwinds.

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