Acme Resources Q2 FY26: Profit Plunges 56% as NBFC Struggles with Margin Compression

The company's stock has been under severe pressure, declining 23.71% over the past year whilst the broader Sensex gained 9.10%, resulting in a negative alpha of 32.81 percentage points. Trading at ₹39.38 as of November 13, the stock is currently in a mildly bearish technical trend, having changed direction on October 29, 2025. The sharp underperformance against the Non Banking Financial Company sector, which delivered 25.03% returns over the same period, highlights the company-specific challenges facing Acme Resources.

The deterioration in profitability is particularly concerning given the company's already weak return on equity of just 2.71% in the latest quarter, significantly below peer averages and indicating poor capital efficiency. With an overall Mojo Score of just 21 out of 100 and a "Strong Sell" advisory, the company faces multiple headwinds that warrant careful examination by existing shareholders and potential investors alike.

Financial Performance: Margin Erosion Drives Profit Collapse

The Q2 FY26 results reveal a troubling picture of operational deterioration. Net sales declined 13.22% year-on-year to ₹2.10 crores from ₹2.42 crores, whilst sequentially showing a modest 6.06% increase from Q1 FY26's ₹1.98 crores. However, the sequential improvement in top-line growth masks deeper issues in profitability and operational efficiency that have emerged over recent quarters.

The most alarming aspect of the quarterly results is the dramatic compression in profitability margins. Operating profit margin (excluding other income) stood at 38.57% in Q2 FY26, representing a steep decline from 92.98% in the year-ago quarter. This 54.41 percentage point contraction in operating efficiency signals fundamental challenges in the company's core lending operations and cost management capabilities.

The profit after tax margin collapsed to 43.81% in Q2 FY26 from 86.36% a year earlier, a staggering deterioration of 42.55 percentage points. Whilst the company reported other income of ₹0.91 crores in Q2 FY26 compared to just ₹0.01 crores in the year-ago period, this one-time boost could not offset the underlying weakness in core operating profitability. The tax rate also spiked abnormally to 43.12% in Q2 FY26 from just 5.00% in Q2 FY25, further eroding net profitability.

Operational Challenges: Weak Capital Efficiency Persists

The fundamental weakness in Acme Resources' business model becomes evident when examining its return on equity, a critical metric for assessing how efficiently the company generates profits from shareholder capital. The latest quarter's ROE of 2.71% is significantly below acceptable standards for financial services companies, indicating that the company is generating minimal returns on the capital deployed in its business.

The average ROE over the past five years stands at just 3.26%, highlighting that this is not a temporary aberration but a structural challenge. For context, quality NBFCs typically deliver ROE in the range of 12-18%, making Acme Resources' performance particularly concerning. The company's ROCE (Return on Capital Employed) of 3.40% further confirms the capital inefficiency plaguing the organisation.

On the balance sheet front, the company maintains a relatively conservative leverage position with minimal long-term debt. Shareholder funds stood at ₹130.83 crores as of March 2025, up marginally from ₹127.28 crores in the previous year. Current assets of ₹59.52 crores against current liabilities of ₹29.34 crores provide adequate liquidity coverage, though the company's investments of ₹30.07 crores remain largely stagnant, suggesting limited deployment opportunities or strategic hesitation.

The cash flow statement reveals mixed signals. Operating cash flow turned positive at ₹1.00 crore in FY25 after being negative at ₹1.00 crore in FY24, though this improvement appears modest relative to the company's asset base. More concerning is the erratic nature of cash flows over recent years, with significant swings between ₹26.00 crores (FY21) and negative ₹8.00 crores (FY23), suggesting inconsistent business generation and collection efficiency.

Asset Quality Analysis: Limited Visibility Raises Questions

For an NBFC, asset quality metrics such as gross and net non-performing assets are crucial indicators of portfolio health and risk management capabilities. Unfortunately, the available financial data does not provide granular disclosure on NPA levels, disbursement trends, or asset under management (AUM) growth, limiting the ability to assess the quality and sustainability of the loan book.

The company's interest expense remained relatively stable at ₹0.11 crores in Q2 FY26 compared to ₹0.05 crores in the year-ago quarter, suggesting modest borrowing costs. However, without clarity on the composition of the loan portfolio, sectoral exposures, or collection efficiency metrics, investors are left with limited visibility into the underlying drivers of the business and potential stress points that may emerge.

Peer Comparison: Trailing Industry Standards

When benchmarked against peer NBFCs, Acme Resources' underperformance becomes starkly evident. The company's ROE of 3.26% significantly lags the peer group average, with competitors like Saumya Cons delivering 12.05% ROE, nearly four times higher. This gap in capital efficiency translates directly into shareholder value creation, explaining the valuation discount Acme Resources trades at relative to better-performing peers.

Interestingly, despite the weak operational performance, Acme Resources trades at a P/E multiple of 37.87x, significantly higher than peers like Saumya Cons (11.55x) and Ramsons Projects (19.62x). This elevated valuation appears unjustified given the company's inferior ROE and deteriorating profitability trends. The P/BV ratio of 0.77x, whilst appearing attractive on the surface, reflects the market's scepticism about the company's ability to generate adequate returns on its book value.

The peer comparison underscores that Acme Resources lacks the competitive advantages, operational efficiency, or growth momentum that would justify a premium valuation. With negligible institutional holdings (0.0%), the stock lacks the quality endorsement that typically accompanies fundamentally strong businesses, further highlighting the challenges facing the company.

Valuation Analysis: Expensive Despite Weak Fundamentals

Acme Resources' valuation metrics present a paradox: the stock trades at premium multiples despite deteriorating fundamentals and weak returns. The P/E ratio of 37.87x significantly exceeds the industry average of 23x, implying that investors are paying a substantial premium for each rupee of earnings generated. Given the 55.98% year-on-year profit decline and weak ROE, this valuation appears unjustified and unsustainable.

The company's EV/EBITDA multiple of 30.16x further confirms the expensive valuation. For context, quality NBFCs with strong growth trajectories and superior ROEs typically trade at EV/EBITDA multiples in the 15-25x range. Acme Resources' elevated multiple, combined with its weak operational performance, suggests significant downside risk should the market reassess the company's earnings quality and growth prospects.

The stock's valuation grade has consistently remained in "Expensive" or "Very Expensive" territory over recent months, with brief transitions between these categories. As of November 13, 2025, the stock trades at ₹39.38, approximately 53.14% below its 52-week high of ₹84.04 but still 9.36% above its 52-week low of ₹36.01. The significant decline from peak levels reflects growing market recognition of the company's fundamental challenges.

With no dividend yield and limited near-term catalysts for improvement, the risk-reward equation appears unfavourable. The combination of expensive valuation multiples, deteriorating profitability, weak ROE, and negative price momentum creates a challenging environment for investors seeking value or growth in the NBFC space.

Shareholding Pattern: Stable but Lacking Institutional Confidence

The shareholding structure of Acme Resources has remained remarkably static over the past five quarters, with promoter holding steady at 73.43% and non-institutional shareholders accounting for the remaining 26.57%. Whilst promoter stability can be viewed positively, the complete absence of institutional participation—with 0.00% holdings from FIIs, mutual funds, insurance companies, and other DIIs—raises significant red flags about the company's investment appeal.

Institutional investors typically conduct rigorous due diligence before investing, examining business models, management quality, corporate governance, and growth prospects. The complete absence of institutional participation in Acme Resources suggests that sophisticated investors have not found compelling reasons to allocate capital to this micro-cap NBFC, likely due to concerns around scale, profitability, transparency, or growth visibility.

The promoter group comprises three private limited companies—Narayani Dealers Private Limited (44.87%), Bluemoon Dealcom Private Limited (14.59%), and Merit Dealers Private Limited (13.22%)—along with individual promoter Kuldeep Saluja (0.75%). Positively, there is no promoter pledging, eliminating one potential risk factor. However, the lack of institutional validation and the concentrated retail shareholder base increase liquidity risks and volatility.

Stock Performance: Severe Underperformance Across Timeframes

Acme Resources' stock performance paints a picture of sustained underperformance and value erosion over the near to medium term, though longer-term returns show some resilience. Over the past year, the stock has declined 23.71% whilst the Sensex gained 9.10%, resulting in a negative alpha of 32.81 percentage points. This underperformance accelerated in recent months, with the stock declining 1.06% in the past month against a Sensex gain of 2.95%.

The stock's technical indicators reflect the fundamental deterioration. Currently in a "Mildly Bearish" trend since October 29, 2025, the stock trades below all key moving averages—5-day (₹39.88), 20-day (₹40.11), 50-day (₹39.36), 100-day (₹39.61), and 200-day (₹39.82)—indicating sustained selling pressure. The MACD shows mixed signals with weekly mildly bullish but monthly mildly bearish, whilst Bollinger Bands indicate bearish momentum across both timeframes.

The stock's high beta of 1.50 suggests it is significantly more volatile than the broader market, amplifying both gains and losses. With a risk-adjusted return of -0.48 over the past year and volatility of 49.23%, the stock falls squarely into the "High Risk Low Return" category—an unfavourable combination for risk-conscious investors. The stock has also dramatically underperformed its NBFC sector peer group, which delivered 25.03% returns over the past year, highlighting company-specific rather than sector-wide challenges.

Investment Thesis: Multiple Red Flags Warrant Caution

The investment thesis for Acme Resources is severely challenged by multiple converging negative factors. The company's Mojo Score of 21 out of 100 places it firmly in "Strong Sell" territory, with the proprietary rating system highlighting concerns across valuation, quality, financial trends, and technical momentum. The score has deteriorated from 50 (Hold) in November 2024 to the current level, reflecting the progressive weakening of fundamentals.

The quality assessment categorises Acme Resources as a "Below Average" company based on long-term financial performance, with particular concerns around the 5-year sales decline of 5.35% and EBIT decline of 12.38%. The average ROE of 3.26% over five years is significantly below acceptable standards for NBFCs, indicating persistent capital inefficiency that management has been unable to address despite having adequate time to implement corrective measures.

Key Strengths & Risk Factors

Outlook: What to Watch

The path forward for Acme Resources requires substantial operational improvements and strategic repositioning to justify investor confidence. Management must address the fundamental issues driving margin compression and capital inefficiency whilst simultaneously improving transparency around key business metrics. Without visible progress on these fronts, the stock is likely to remain under pressure as investors rotate towards higher-quality NBFC alternatives with stronger fundamentals and clearer growth trajectories.