The quarter's narrative centres on margin expansion compensating for revenue softness. Whilst net sales declined sequentially, the company achieved its highest operating profit margin in seven quarters at 13.80%, demonstrating improved cost management and operational efficiency. However, the year-on-year revenue decline of 3.91% and continued underperformance against the broader market raise questions about demand momentum in the minerals and mining sector.
The stock's technical positioning remains concerning, with the price trading below all major moving averages and a mildly bearish trend established since late October. The proprietary Mojo score of 42 out of 100 places the stock firmly in "SELL" territory, reflecting concerns about near-term catalysts despite attractive valuations.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 230.78 | 247.16 | 227.45 | 214.65 | 240.18 | 230.55 | 212.34 |
| QoQ Change | -6.63% | +8.67% | +5.96% | -10.63% | +4.18% | +8.58% | — |
| Net Profit (₹ Cr) | 17.40 | 16.86 | 15.22 | 12.89 | 16.41 | 17.86 | 13.64 |
| QoQ Change | +3.20% | +10.78% | +18.08% | -21.45% | -8.12% | +30.94% | — |
| Operating Margin % | 13.80 | 12.85 | 12.76 | 12.22 | 12.89 | 13.01 | 12.50 |
| PAT Margin % | 7.52 | 6.82 | 6.69 | 6.02 | 6.85 | 7.76 | 6.44 |
Financial Performance: Margin Expansion Amidst Revenue Headwinds
In Q2 FY26, 20 Microns reported net sales of ₹230.78 crores, declining 6.63% quarter-on-quarter from ₹247.16 crores in Q1 FY26. The year-on-year comparison reveals a 3.91% decline from ₹240.18 crores in Q2 FY25, suggesting softening demand in the minerals and mining sector. On a half-yearly basis, H1 FY26 revenues stood at ₹477.94 crores, representing a 4.04% increase over H1 FY25's ₹470.73 crores.
Despite the revenue contraction, consolidated net profit demonstrated resilience, rising 3.20% sequentially to ₹17.40 crores from ₹16.86 crores in Q1 FY26. The year-on-year profit growth of 6.03% from ₹16.41 crores in Q2 FY25 reflects improved operational efficiency. The PAT margin expanded to 7.52% in Q2 FY26, up from 6.82% in the previous quarter, marking the second-highest margin in the past seven quarters.
Operating profit excluding other income (PBDIT excl OI) reached ₹31.85 crores in Q2 FY26, marginally higher than Q1 FY26's ₹31.75 crores but up 2.88% year-on-year from ₹30.96 crores. The operating margin of 13.80% represents the highest level achieved in seven quarters, surpassing the 12.85% recorded in Q1 FY26 and demonstrating superior cost control despite revenue pressures.
Interest costs declined to ₹4.45 crores in Q2 FY26 from ₹4.70 crores in Q1 FY26, reflecting improved financial efficiency. The operating profit to interest coverage ratio reached 7.16 times in Q2 FY26, the highest in the trailing seven quarters, indicating strong debt servicing capability. Depreciation increased marginally to ₹5.46 crores from ₹5.00 crores, in line with ongoing capital expenditure programmes.
Tax expenses remained relatively stable at ₹6.11 crores in Q2 FY26 compared to ₹6.01 crores in Q1 FY26, with the effective tax rate declining to 26.04% from 26.28%. The lower tax rate contributed to bottom-line growth, though it remains within the company's historical range of 20-29%.
Operational Excellence: Capital Efficiency Drives Returns
The company's operational metrics reveal a business focused on capital efficiency and return generation. The latest return on equity (ROE) of 14.77% positions 20 Microns as a moderately strong performer in capital utilisation, above the company's five-year average of 13.94%. Higher ROE indicates better capital efficiency and profitability, a positive indicator for shareholders seeking returns on invested capital.
Return on capital employed (ROCE) stood at 17.69% as of the latest reporting period, marginally below the five-year average of 18.00% but still demonstrating healthy returns on operational assets. The ROCE calculation, based on EBIT minus other income divided by capital employed (excluding cash and current investments), reflects the company's ability to generate returns from its core manufacturing operations.
Operational Strength: Debt Management Excellence
20 Microns maintains a conservative balance sheet with a debt-to-EBITDA ratio of 1.46 and net debt-to-equity of just 0.29, well below industry stress levels. Long-term debt stood at ₹22.21 crores as of March 2025, up from ₹12.41 crores a year earlier, reflecting measured capacity expansion. The company's EBIT-to-interest coverage of 4.24 times provides comfortable cushion for debt obligations, though this represents the lower end of investment-grade coverage ratios.
The balance sheet as of March 2025 shows shareholder funds of ₹429.36 crores, up 21.65% from ₹352.95 crores in March 2024, driven by retained earnings. Fixed assets increased to ₹271.35 crores from ₹206.77 crores, indicating ongoing capital investment in manufacturing capacity. Current assets of ₹375.16 crores exceeded current liabilities of ₹219.31 crores, providing a healthy current ratio of 1.71, demonstrating adequate working capital management.
Cash flow dynamics present a mixed picture. Operating cash flow for FY25 declined sharply to ₹31.00 crores from ₹54.00 crores in FY24, primarily due to a ₹65.00 crore increase in working capital requirements. This working capital build-up, nearly double the previous year's ₹33.00 crore increase, suggests either inventory accumulation or extended receivables collection periods, warranting close monitoring.
Industry Context: Navigating Minerals Sector Headwinds
The minerals and mining sector has faced challenging conditions over the past year, with the sector index declining 7.58% compared to 20 Microns' 13.75% fall, indicating company-specific underperformance of 6.17 percentage points. The broader market, as measured by the Sensex, gained 4.62% over the same period, highlighting the sector's relative weakness.
20 Microns operates in the functional fillers and speciality chemicals segment, serving industries including paints, plastics, paper, and rubber. The company's product portfolio includes calcium carbonate, kaolin, and other mineral-based additives. Demand patterns in these end-user industries directly impact the company's revenue trajectory, with construction and manufacturing activity being key drivers.
Competitive Positioning: Scale Advantage in Niche Segment
As India's largest producer of white minerals, 20 Microns enjoys scale advantages in a fragmented market. The company's integrated operations from mining to processing provide cost advantages and quality control. However, the sector faces pricing pressures from imports and commodity price volatility, which can compress margins during periods of weak demand. The company's ability to maintain operating margins above 13% despite revenue headwinds demonstrates its competitive moat in the speciality segment.
The five-year sales compound annual growth rate (CAGR) of 15.32% and EBIT CAGR of 25.22% demonstrate the company's long-term growth trajectory, though recent quarterly performance suggests a cyclical slowdown. The sales-to-capital-employed ratio of 1.64 indicates moderate asset turnover efficiency, typical for capital-intensive minerals processing businesses.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| 20 Microns | 12.07 | 1.75 | 13.94 | 0.29 | 0.59 |
| GMDC | 28.68 | 2.98 | 11.70 | -0.07 | 1.68 |
| Gravita India | 34.86 | 0.56 | 25.84 | -0.25 | 0.37 |
| MOIL | 25.98 | 2.77 | 12.54 | -0.37 | 1.56 |
| Ashapura Minechem | 17.54 | 4.89 | 19.28 | 0.84 | 0.16 |
Peer Comparison: Valuation Discount Reflects Growth Concerns
20 Microns trades at a price-to-earnings ratio of 12.07 times trailing twelve-month earnings, representing a significant discount to the peer group average of approximately 27 times. This valuation gap reflects market concerns about growth sustainability and the company's smaller market capitalisation of ₹736.00 crores, classifying it as a micro-cap stock with higher perceived risk.
The price-to-book ratio of 1.75 times appears reasonable given the company's ROE of 13.94%, though it trades at a premium to Gravita India's 0.56 times despite Gravita's superior ROE of 25.84%. This suggests investors value 20 Microns' established market position and lower debt profile (debt-to-equity of 0.29) compared to its asset-light competitor.
Among peers, 20 Microns demonstrates moderate return metrics. Its ROE of 13.94% trails Gravita India (25.84%) and Ashapura Minechem (19.28%) but exceeds GMDC (11.70%) and MOIL (12.54%). The company's conservative leverage strategy, with positive net debt compared to negative net debt positions at some peers, reflects a more traditional capital structure in a capital-intensive industry.
The dividend yield of 0.59% lags sector peers GMDC (1.68%) and MOIL (1.56%), reflecting a low payout ratio of 7.07%. This conservative dividend policy suggests management prioritises reinvestment in capacity expansion over immediate shareholder returns, as evidenced by the ₹63.00 crore investing cash outflow in FY25.
Valuation Analysis: Attractive Multiples Offset by Growth Uncertainties
At the current price of ₹213.50, 20 Microns trades at a P/E ratio of 12.07 times, below the industry average of approximately 20 times for minerals and mining companies. The EV/EBITDA multiple of 7.44 times appears reasonable for a company with mid-teen EBITDA margins and moderate growth prospects. The enterprise value to sales ratio of 0.94 times suggests the market values the company at slightly below one times annual revenue, typical for commodity-linked businesses.
The PEG ratio of 3.15 raises concerns, indicating the stock trades at 3.15 times its earnings growth rate. A PEG ratio above 2.0 typically suggests overvaluation relative to growth, though the metric can be distorted by cyclical earnings patterns. Given the company's five-year EBIT CAGR of 25.22%, the elevated PEG ratio stems from recent growth deceleration rather than excessive valuation multiples.
The stock's valuation grade stands at "Attractive," upgraded from "Very Attractive" in May 2025 following price appreciation. This assessment reflects the combination of reasonable multiples and concerns about near-term growth catalysts. The 52-week price range of ₹158.00 to ₹284.10 indicates significant volatility, with the current price 24.85% below the peak and 35.13% above the trough.
Book value per share of ₹121.68 provides downside support, with the current price representing a 75% premium to book value. This premium appears justified by the company's ability to generate mid-teen returns on equity, though any deterioration in profitability could compress the multiple towards book value.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 |
|---|---|---|---|---|
| Promoter % | 45.04 | 45.04 | 45.04 | 45.04 |
| QoQ Change | 0.00 | 0.00 | 0.00 | +0.05 |
| FII % | 0.26 | 0.88 | 0.84 | 0.87 |
| QoQ Change | -0.62 | +0.04 | -0.03 | -0.13 |
| DII % | 0.18 | 0.15 | 0.15 | 0.02 |
| QoQ Change | +0.03 | 0.00 | +0.13 | 0.00 |
| Non-Institutional % | 54.52 | 53.93 | 53.96 | 54.07 |
Shareholding Pattern: Promoter Stability Amidst FII Exit
Promoter holding remained stable at 45.04% in Q2 FY26, unchanged from the previous three quarters. The marginal 0.05% increase in Q4 FY24 brought promoter stake to its current level, demonstrating confidence in the business. Notably, zero promoter pledging provides comfort regarding financial stress at the promoter level, a positive indicator for governance and financial stability.
Foreign institutional investor (FII) holding declined sharply to 0.26% in Q2 FY26 from 0.88% in Q1 FY26, representing a 0.62 percentage point reduction. This marks continued FII selling, with holdings declining from 1.00% in Q2 FY24. The exodus of foreign investors, despite attractive valuations, suggests concerns about liquidity, growth visibility, or sector headwinds.
Domestic institutional investor (DII) holdings, whilst minimal at 0.18%, showed a marginal increase of 0.03 percentage points in Q2 FY26. The absence of mutual fund holdings (0.00% across all quarters) and insurance company participation highlights the stock's limited institutional appeal, likely due to its micro-cap status and lower trading liquidity.
Non-institutional investors, primarily retail shareholders and non-institutional entities, hold 54.52% as of Q2 FY26, up from 53.93% in the previous quarter. This retail-heavy shareholding structure can contribute to higher volatility and lower liquidity, as evidenced by the stock's beta of 1.50, indicating 50% higher volatility than the broader market.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +3.26% | -0.86% | +4.12% |
| 1 Month | +1.47% | +1.57% | -0.10% |
| 3 Months | -8.37% | +3.22% | -11.59% |
| 6 Months | -0.23% | +3.06% | -3.29% |
| YTD | -9.80% | +6.50% | -16.30% |
| 1 Year | -13.75% | +4.62% | -18.37% |
| 2 Years | +37.03% | +28.14% | +8.89% |
| 3 Years | +130.56% | +36.01% | +94.55% |
Stock Performance: Long-Term Outperformance Offset by Recent Weakness
20 Microns has delivered exceptional long-term returns, with a three-year gain of 130.56% compared to the Sensex's 36.01%, generating alpha of 94.55 percentage points. The five-year return of 614.05% versus the Sensex's 98.64% demonstrates the stock's wealth-creation potential during its growth phase, though recent performance suggests the high-growth phase may be moderating.
However, near-term performance paints a concerning picture. The stock declined 13.75% over the past year whilst the Sensex gained 4.62%, resulting in negative alpha of 18.37 percentage points. Year-to-date, the stock is down 9.80% against the Sensex's 6.50% gain, underperforming by 16.30 percentage points. The three-month decline of 8.37% versus the Sensex's 3.22% gain highlights accelerating underperformance.
The stock's risk-adjusted return over one year stands at negative 0.29, with volatility of 47.83% compared to the Sensex's 12.39%. This high volatility, reflected in the beta of 1.50, indicates the stock amplifies market movements by 50%, making it unsuitable for risk-averse investors. The negative Sharpe ratio confirms investors have not been compensated for the elevated risk undertaken.
Technical indicators uniformly signal caution. The stock trades below all key moving averages: 5-day (₹212.03), 20-day (₹212.49), 50-day (₹220.56), 100-day (₹228.80), and 200-day (₹217.64). The mildly bearish trend, established on October 27, 2025, at ₹210.45, has persisted, with weekly MACD bearish and monthly MACD mildly bearish. The stock faces immediate resistance at the 20-day moving average of ₹212.49, with major resistance at the 100-day moving average of ₹228.80.
Investment Thesis: Value Trap or Cyclical Opportunity?
The investment case for 20 Microns presents a classic value-versus-momentum dilemma. The stock trades at attractive valuations with a P/E of 12.07 times and generates respectable returns on equity of 14.77%, yet faces headwinds from flat financial trends, bearish technicals, and institutional selling. The Mojo score of 42 out of 100, firmly in "SELL" territory, reflects this challenging combination.
The quality assessment grades the company as "Average," downgraded from "Good" prior to February 2024. Whilst the company demonstrates healthy long-term growth (15.32% sales CAGR) and maintains zero promoter pledging with a strong balance sheet, the weak EBIT-to-interest coverage of 4.24 times and modest ROE relative to high-growth peers limit the quality rating.
KEY STRENGTHS
- Market leadership in white minerals segment with scale advantages
- Highest operating margin (13.80%) achieved in seven quarters demonstrates cost control
- Strong balance sheet with debt-to-equity of 0.29 and no promoter pledging
- Healthy ROE of 14.77% indicates effective capital utilisation
- Attractive valuation at 12.07x P/E, below industry average
- Long-term track record with 15.32% sales CAGR and 25.22% EBIT CAGR over five years
- Operating profit to interest coverage of 7.16x provides debt servicing comfort
KEY CONCERNS
- Revenue declined 6.63% QoQ and 3.91% YoY, signalling demand weakness
- Stock down 13.75% over one year, underperforming Sensex by 18.37 percentage points
- Operating cash flow declined sharply to ₹31.00 crores in FY25 from ₹54.00 crores in FY24
- Working capital increased by ₹65.00 crores, indicating potential receivables or inventory issues
- FII holding collapsed from 0.88% to 0.26% in Q2 FY26, reflecting institutional concerns
- High volatility (47.83%) and beta of 1.50 make it unsuitable for conservative investors
- PEG ratio of 3.15 suggests overvaluation relative to current growth trajectory
Outlook: What Lies Ahead for 20 Microns
The forward outlook for 20 Microns depends critically on demand recovery in end-user industries and the company's ability to sustain margin improvements. The minerals and mining sector's performance will likely track broader economic activity, particularly in construction, infrastructure, and manufacturing sectors that drive demand for functional fillers and speciality chemicals.
POSITIVE CATALYSTS
- Revenue growth returning to double-digit levels on improved demand
- Operating margins sustaining above 13.5% through operational efficiencies
- Operating cash flow recovery to historical ₹50+ crore levels
- Working capital normalisation with receivables collection improvement
- Stock reclaiming 200-day moving average of ₹217.64
RED FLAGS TO MONITOR
- Further revenue decline in Q3 FY26, confirming demand deterioration
- Operating margins compressing below 12.5% due to pricing pressures
- Continued working capital build-up exceeding ₹70 crores annually
- Additional FII selling below 0.20% holding threshold
- Stock breaking below 52-week low of ₹158.00
The company's capacity expansion programme, evidenced by ₹63.00 crores in investing cash flows during FY25, should drive volume growth once demand conditions improve. However, the elevated working capital requirements and cash flow pressures suggest the expansion may be straining near-term liquidity, a factor requiring close monitoring in subsequent quarters.
"20 Microns presents a value opportunity obscured by cyclical headwinds – attractive on metrics but challenged on momentum, requiring patience for mean reversion."
The Verdict: Hold for Patient Value Investors, Avoid for Momentum Seekers
Score: 42/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst valuations appear attractive at 12.07x P/E, the combination of flat financial trends, bearish technical setup, and institutional selling creates unfavourable risk-reward dynamics. Consider the stock only if it demonstrates two consecutive quarters of revenue growth above 10% and operating cash flow recovery above ₹50 crores, or if price corrects to ₹180-190 levels (book value proximity).
For Existing Holders: Consider reducing positions on any rally towards ₹225-230 (100-day moving average). The stock's inability to sustain above key moving averages despite margin improvements suggests limited near-term upside. Long-term holders with 2-3 year horizons may retain positions given the company's track record and attractive valuations, but should prepare for continued volatility and potential further downside to ₹180-190 levels before stabilisation.
Fair Value Estimate: ₹240-250 (12-17% upside from current levels), achievable only upon demonstration of sustained revenue growth recovery and operating cash flow normalisation. Current price of ₹213.50 offers limited margin of safety given execution uncertainties.
Note: ROCE = (EBIT - Other Income) / (Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. All investments carry risk, including potential loss of principal.
