AD Manum Finance Q2 FY26: Profit Plunges 54% as Tax Rate Surges to 48%

Despite relatively stable operating performance, the NBFC's profitability took a severe hit from the elevated tax burden, raising concerns about earnings quality and sustainability. Revenue for Q2 FY26 stood at ₹2.59 crores, declining 18.81% QoQ and 29.23% YoY, whilst operating margins remained robust at 92.28%.

The second quarter results reveal a company grappling with inconsistent financial performance despite maintaining operational efficiency. Whilst the operating profit margin excluding other income remained elevated at 92.28%, the dramatic spike in tax rate from 14.29% in Q1 FY26 to 48.03% in Q2 FY26 decimated bottom-line profitability. This abnormal tax burden overshadowed what would otherwise have been a respectable operating performance for the micro-cap NBFC.

Financial Performance: Tax Anomaly Masks Operating Stability

AD Manum Finance's Q2 FY26 financial performance presents a tale of two narratives: operational resilience overshadowed by a tax burden that appears anomalous relative to historical patterns. Revenue of ₹2.59 crores declined 18.81% QoQ from ₹3.19 crores in Q1 FY26 and fell 29.23% YoY from ₹3.66 crores in Q2 FY25. The sequential decline reflects typical quarterly fluctuations in the NBFC's business, though the year-on-year contraction raises questions about underlying business momentum.

Operating profit before depreciation, interest, and tax (excluding other income) stood at ₹2.39 crores in Q2 FY26, translating to an impressive operating margin of 92.28%. This represents a marginal improvement from 91.22% in Q1 FY26 and 89.07% in Q2 FY25, demonstrating the company's ability to maintain cost discipline. However, the sustainability of such elevated margins warrants scrutiny, particularly for a financial services company where margins typically range between 60-80%.

The critical issue lies in the tax line. After reporting a tax rate of just 14.29% in Q1 FY26 on profit before tax of ₹5.11 crores, the company faced a tax burden of 48.03% in Q2 FY26 on PBT of ₹2.29 crores. This resulted in a tax outgo of ₹1.10 crores, leaving net profit at just ₹1.20 crores. By comparison, Q1 FY26's lower tax rate of 14.29% on higher PBT yielded a tax expense of only ₹0.73 crores, enabling net profit of ₹4.38 crores.

The PAT margin for Q2 FY26 collapsed to 46.33% from an extraordinary 137.30% in Q1 FY26, which itself was inflated by substantial other income of ₹2.39 crores. Excluding the volatility in other income, the core profit margin trends reveal a business that generates healthy operating profits but suffers from inconsistent tax planning and potential one-time adjustments.

Balance Sheet Quality: Conservative Capital Structure

AD Manum Finance maintains a conservative balance sheet with zero long-term debt as of March 2025, a significant positive for a financial services company. Shareholder funds stood at ₹80.02 crores, comprising share capital of ₹7.50 crores and reserves of ₹72.52 crores. The debt-to-equity ratio of 0.09 is remarkably low, indicating minimal leverage and strong financial stability.

However, the company's return on equity of 11.54% (latest) and average ROE of 8.37% over the past five years remain modest, particularly given the minimal leverage employed. Whilst higher ROE typically indicates better capital efficiency, AD Manum's single-digit average ROE suggests the company has struggled to generate robust returns for shareholders despite its conservative capital structure. This raises questions about asset deployment efficiency and business scalability.

Fixed assets stood at ₹0.24 crores as of March 2025, down from ₹0.36 crores in the previous year, reflecting the asset-light nature of the NBFC business model. Current assets of ₹7.95 crores are adequately matched against current liabilities of ₹8.76 crores, providing a current ratio just below 1.0. The absence of investments on the balance sheet suggests the company focuses primarily on its core lending operations rather than treasury management.

The Tax Conundrum: A Deeper Look at Earnings Quality

The dramatic fluctuation in tax rates across quarters—from 25.32% in Mar'25 to 14.29% in Jun'25 to 48.03% in Sep'25—points to significant volatility in the company's tax planning or one-time adjustments that obscure underlying business performance. For FY25, the annual tax rate was a more normalised 18.20%, suggesting that quarterly variations may stem from timing differences or provisions that eventually balance out over the fiscal year.

However, for investors attempting to assess the company's true earning power, such volatility creates significant challenges. The half-year FY26 results show net profit of ₹5.58 crores on revenue of ₹5.78 crores, implying a blended PAT margin of 96.54%—a figure that appears unsustainably high and likely reflects the Q1 FY26 windfall from other income and low tax rate.

More concerning is the year-on-year comparison: H1 FY26 net profit of ₹5.58 crores represents a decline of 49.50% from H1 FY25's ₹11.05 crores (estimated based on quarterly data). This significant erosion in profitability, despite relatively stable operating margins, underscores the impact of tax volatility and declining other income on bottom-line performance.

Peer Comparison: Valuation Discount Reflects Challenges

AD Manum Finance trades at a significant discount to its micro-cap NBFC peers across most valuation metrics. With a price-to-earnings ratio of 3.99x and price-to-book value of 0.46x, the stock appears statistically cheap. However, this discount reflects legitimate concerns about business quality, scale, and earnings consistency.

Compared to peers, AD Manum Finance demonstrates a middling ROE of 8.37%, which is superior to loss-making peers but trails Sugal & Damani's 9.67%. The company's P/BV ratio of 0.46x is the second-lowest in the peer group, suggesting the market assigns minimal value to the company's book equity. Whilst the ultra-low debt-to-equity ratio of 0.09 is a positive differentiator, it also implies limited financial leverage to amplify returns.

The P/E ratio of 3.99x appears attractive on the surface, but this must be contextualised against the company's flat financial trend, high earnings volatility, and modest growth prospects. With five-year sales growth of just 5.93% and EBIT growth of 12.67%, AD Manum Finance lacks the growth trajectory to justify even moderate valuation multiples.

Valuation Analysis: Statistically Cheap, Fundamentally Challenged

AD Manum Finance's valuation metrics paint a picture of a deeply discounted stock, but the discount appears justified by fundamental weaknesses. The stock trades at a P/E of 3.99x against an industry average of 22x, representing an 82% discount. The price-to-book value of 0.46x implies the market values the company at less than half its stated net worth, a level typically reserved for structurally challenged businesses or those facing existential risks.

The company's EV/EBITDA of 4.18x and EV/EBIT of 4.20x appear reasonable, but these metrics can be misleading for financial services companies where EBITDA and EBIT are less relevant than metrics like price-to-book and return on equity. The EV/Sales ratio of 3.78x is elevated relative to the company's modest profitability and growth, suggesting limited operating leverage.

The proprietary Mojo Score of 26/100 places AD Manum Finance firmly in "Strong Sell" territory, reflecting concerns across multiple dimensions: flat financial trend, bearish technical outlook, below-average quality grade, and weak long-term ROE averaging 8.37%. Whilst the valuation is graded as "Very Attractive," this alone cannot overcome the fundamental and technical headwinds facing the stock.

The PEG ratio of 2.08 suggests the stock is not particularly cheap relative to its growth rate, despite the low absolute P/E multiple. This metric reinforces the view that AD Manum Finance's valuation discount is structural rather than temporary, reflecting the market's assessment of limited growth potential and earnings quality concerns.

Shareholding Pattern: Stable but Uninspiring

The shareholding pattern of AD Manum Finance has remained completely static over the past five quarters, with promoter holding steady at 74.30% and non-institutional investors holding 25.70%. There has been zero participation from foreign institutional investors, mutual funds, insurance companies, or other domestic institutional investors, a significant red flag for a publicly listed company.

The complete absence of institutional investors reflects the company's micro-cap status, limited liquidity, and lack of research coverage. With just 75 lakh outstanding shares and a market cap of ₹39.00 crores, AD Manum Finance falls well below the radar of most institutional investors. The static shareholding pattern—with no sequential changes over five quarters—suggests minimal investor interest and extremely low trading volumes.

Positively, there is no promoter pledging, indicating the promoter group's confidence in the business and financial stability. However, the lack of any institutional validation or fresh capital inflows limits the stock's near-term re-rating potential and raises questions about corporate governance and disclosure standards.

Stock Performance: Severe Underperformance Across All Timeframes

AD Manum Finance has delivered deeply disappointing returns across virtually all meaningful timeframes, significantly underperforming both the broader market and its NBFC sector peers. The stock has declined 34.75% over the past year against a Sensex gain of 7.18%, resulting in negative alpha of 41.93 percentage points. This underperformance has accelerated in recent months, with the stock down 25.41% over six months and 21.02% over three months.

The stock has underperformed the NBFC sector by a staggering 54.97 percentage points over the past year, with the sector delivering positive returns of 20.22% whilst AD Manum Finance declined 34.75%. This severe underperformance reflects investor concerns about the company's earnings quality, growth prospects, and lack of scale relative to larger, more established NBFCs.

Technical indicators uniformly point to continued weakness. The stock trades below all key moving averages—5-day (₹53.28), 20-day (₹54.81), 50-day (₹57.30), 100-day (₹62.68), and 200-day (₹67.62)—indicating sustained downward momentum. The overall technical trend is classified as "Bearish" as of December 9, 2025, with multiple indicators including MACD, Bollinger Bands, and KST all flashing bearish signals.

With a beta of 1.50, AD Manum Finance is classified as a high-beta stock, meaning it tends to be 50% more volatile than the broader market. The combination of high volatility (46.13% annualised) and negative returns has resulted in a negative risk-adjusted return of -0.75 and a negative Sharpe ratio, placing the stock in the "HIGH RISK LOW RETURN" category—the worst possible risk-return profile for investors.

Investment Thesis: Multiple Headwinds Outweigh Valuation Appeal

The investment case for AD Manum Finance is severely challenged by a confluence of fundamental, technical, and qualitative concerns that far outweigh the superficial appeal of low valuation multiples. Whilst the stock trades at a P/E of 3.99x and P/BV of 0.46x—metrics that might appear attractive in isolation—the underlying business exhibits characteristics that justify this deep discount.

The company's below-average quality grade stems from weak long-term financial performance, with average ROE of just 8.37% over five years—a level that barely exceeds risk-free rates and falls well short of the cost of equity for a high-risk micro-cap NBFC. The flat financial trend designation reflects the 49.50% year-on-year decline in half-year net profit, driven by the abnormal tax rate spike and declining other income.

From a technical perspective, the bearish classification is unambiguous, with the stock trading below all key moving averages and exhibiting sustained downward momentum. The combination of negative fundamental trends and bearish technical signals creates a challenging environment for any near-term recovery, even if valuation appears attractive on traditional metrics.

Key Strengths & Risk Factors

Outlook: What to Watch

The near-term outlook for AD Manum Finance hinges primarily on management's ability to provide clarity on the Q2 FY26 tax rate anomaly and demonstrate consistent profitability in subsequent quarters. Without transparency on the factors driving the 48.03% tax rate, investor confidence will remain severely impaired. Additionally, the company needs to articulate a credible growth strategy to revive revenue momentum and improve return on equity metrics.

From a technical standpoint, any meaningful recovery would require the stock to reclaim the 20-day moving average at ₹54.81 and subsequently the 50-day moving average at ₹57.30. Until these levels are breached on sustained volumes, the path of least resistance remains downward. The combination of fundamental concerns and bearish technical setup creates a challenging environment for contrarian investors betting on a valuation-driven rebound.