Vardhman Special Steels Ltd Upgraded to Hold on Technical and Valuation Improvements

Quality Assessment: Management Efficiency and Debt Servicing

Vardhman Special Steels continues to demonstrate robust management efficiency, as evidenced by its high Return on Capital Employed (ROCE) of 15.37%. This figure, while slightly lower than the half-year low of 11.09%, remains strong within the iron and steel sector, indicating effective utilisation of capital resources. The company’s ability to service its debt is also commendable, with a low Debt to EBITDA ratio of 0.73 times, underscoring a conservative leverage position that mitigates financial risk.

Return on Equity (ROE) stands at a moderate 8.9%, reflecting fair profitability relative to shareholder equity. These quality metrics contribute to the company’s Mojo Grade of Hold, an improvement from the previous Sell rating, signalling a more stable operational foundation.

Valuation: Trading at a Discount with Fair Price-to-Book Ratio

From a valuation standpoint, Vardhman Special Steels is trading at a Price to Book Value of 2.1, which is considered fair within its peer group. Notably, the stock is priced at a discount compared to the average historical valuations of its industry counterparts, offering potential value for investors seeking exposure to the iron and steel products sector.

Despite a flat financial quarter in Q3 FY25-26, the stock has delivered a 10.80% return over the past year, outperforming the Sensex’s 7.97% return during the same period. Over longer horizons, the stock’s performance is even more impressive, with a five-year return of 335.70% compared to the Sensex’s 63.78%, and a ten-year return exceeding 1300%, highlighting its long-term growth credentials.

Financial Trend: Flat Quarterly Performance but Positive Long-Term Returns

The company reported flat financial results for the quarter ending December 2025, with profits rising marginally by 1.5% year-on-year. This subdued growth contributed to a cautious stance on the financial trend parameter. However, the company’s ability to maintain steady returns over longer periods offsets short-term stagnation.

While the half-year ROCE dipped to 11.09%, it remains within a reasonable range for the sector. The stock’s year-to-date return of -7.40% contrasts with the Sensex’s -1.36%, reflecting some recent volatility. Nevertheless, the strong 3-year and 5-year returns of 57.02% and 335.70% respectively, reinforce the company’s resilience and growth potential over time.

Technicals: Shift from Sideways to Mildly Bullish Momentum

The most significant driver behind the upgrade is the improvement in technical indicators. The technical trend has shifted from sideways to mildly bullish, signalling a positive momentum shift in the stock’s price action. Daily moving averages have turned mildly bullish, supporting short-term upward price movement.

Key technical indicators present a mixed but cautiously optimistic picture. The weekly MACD remains bearish, while the monthly MACD is mildly bearish, suggesting some underlying caution. However, the weekly Relative Strength Index (RSI) is bullish, indicating buying interest in the near term. Bollinger Bands show mild bearishness on a weekly basis but sideways movement monthly, reflecting consolidation.

The KST indicator is bearish weekly but bullish monthly, and Dow Theory assessments are mildly bullish weekly but mildly bearish monthly. On-Balance Volume (OBV) shows no clear trend weekly and mild bearishness monthly. Overall, these signals point to a gradual improvement in technical momentum, justifying the upgrade to Hold.

On 10 Feb 2026, the stock closed at ₹263.60, up 2.05% from the previous close of ₹258.30. The 52-week high stands at ₹322.35, while the low is ₹178.30, indicating a wide trading range and potential for further upside if momentum sustains.

Comparative Performance and Shareholding

Vardhman Special Steels operates within the Steel/Sponge Iron/Pig Iron industry, a sector known for cyclical volatility. Despite this, the company’s long-term returns have significantly outpaced the Sensex, with a ten-year return of 1309.30% versus the Sensex’s 249.97%. This outperformance underscores the company’s ability to generate shareholder value over extended periods.

The majority shareholding remains with promoters, providing stability and alignment with shareholder interests. This ownership structure often favours consistent strategic direction and long-term value creation.

Outlook and Investor Considerations

The upgrade to Hold reflects a balanced view of Vardhman Special Steels’ prospects. While recent quarterly results have been flat, the company’s strong management efficiency, conservative debt profile, and fair valuation provide a solid foundation. The improving technical indicators suggest potential for price appreciation in the near term, although some caution remains due to mixed signals on monthly charts.

Investors should weigh the company’s long-term outperformance against short-term volatility and sector cyclicality. The stock’s current discount to peer valuations and reasonable Price to Book ratio may offer an attractive entry point for those seeking exposure to the iron and steel products sector with a moderate risk appetite.

Given the company’s stable promoter holding and consistent capital returns, Vardhman Special Steels is positioned as a Hold-rated stock with potential upside if technical momentum continues to improve and financial trends stabilise.

Summary of Ratings and Scores

As of 09 Feb 2026, the company’s Mojo Score stands at 62.0, with a Mojo Grade upgraded to Hold from Sell. The Market Cap Grade remains at 3, reflecting mid-cap status. The technical grade change was the primary catalyst for the upgrade, with the stock’s daily moving averages turning mildly bullish and the overall technical trend shifting positively.

Investors should monitor upcoming quarterly results and sector developments closely, as these will influence future rating adjustments.

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