AD Manum Finance Q2 FY26: Sharp Profit Decline Amid Volatile Other Income

The Indore-based NBFC, originally incorporated in 1986, has been grappling with structural challenges in its lending operations. Following the quarterly results announcement, the stock witnessed significant volatility, closing at ₹73.80 on October 31, 2025, reflecting an 8.55% single-day gain despite the disappointing earnings. However, the stock remains deeply in negative territory on a longer-term basis, down 28.87% over the past year and 23.92% year-to-date, substantially underperforming both the broader market and its NBFC sector peers.

The quarter's results underscore fundamental weaknesses in the company's business model, with core operating metrics deteriorating across multiple parameters. The combination of declining revenues, compressed profitability, and weak return ratios presents a challenging outlook for investors considering exposure to this micro-cap financial services player.

Financial Performance: Revenue Contraction Exposes Core Weakness

AD Manum Finance's Q2 FY26 results revealed troubling trends across its financial metrics. Net sales in Q2 FY26 stood at ₹2.59 crores, declining 18.81% quarter-on-quarter from ₹3.19 crores in Q1 FY26 and contracting 29.23% year-on-year from ₹3.66 crores in Q2 FY25. This marks the company's lowest quarterly revenue in the past seven quarters, indicating significant challenges in generating interest income from its lending portfolio.

The profit trajectory tells an even more concerning story. Net profit of ₹1.20 crores in Q2 FY26 represents a dramatic 72.60% sequential decline from the ₹4.38 crores reported in Q1 FY26. The inflated Q1 figure was artificially boosted by extraordinary other income of ₹2.39 crores, which collapsed to just ₹0.09 crores in Q2. This volatility in non-operating income masked the underlying weakness in the company's core lending operations, where operating profit excluding other income fell to ₹2.39 crores, the lowest level in recent quarters.

On a year-on-year basis, net profit declined 54.02% from ₹2.61 crores in Q2 FY25, despite the company maintaining relatively stable operating margins. The PAT margin compressed dramatically to 46.33% in Q2 FY26 from an artificially elevated 137.30% in Q1 FY26, primarily due to the normalisation of other income. However, even when compared to the more representative Q2 FY25 PAT margin of 71.31%, the current quarter shows deterioration of 25 percentage points.

The tax rate anomaly in Q2 FY26 warrants attention. At 48.03%, the effective tax rate was significantly higher than the previous quarter's 14.29% and well above the statutory rate, suggesting possible adjustments or non-deductible expenses that further compressed bottom-line profitability. This elevated tax burden reduced net profit by an additional ₹0.75 crores compared to a normalised tax rate, exacerbating the quarter's poor performance.

Operational Challenges: Weak Asset Generation and Quality Concerns

The operational metrics paint a picture of an NBFC struggling with fundamental business generation challenges. Interest income, which forms the core revenue stream for the company, has been on a declining trajectory, falling from ₹3.66 crores in Q2 FY25 to ₹2.59 crores in Q2 FY26. This 29.23% year-on-year contraction suggests either shrinking loan book size, deteriorating asset quality requiring write-offs, or compressed yields due to competitive pressures.

The company's return on equity (ROE) stands at just 8.17% on average, significantly below the industry standard for healthy NBFCs which typically maintain ROE levels above 15%. This weak return profile indicates inefficient capital deployment and limited profitability relative to the shareholder equity base of ₹80.02 crores. The latest quarter ROE of 13.63%, while marginally better than the average, still falls short of acceptable benchmarks for financial services companies.

The balance sheet structure reveals a company with minimal leverage, which whilst reducing financial risk, also limits growth potential. With zero long-term debt and current liabilities of ₹8.76 crores against shareholder funds of ₹80.02 crores, the company maintains a conservative capital structure. However, this conservative approach has not translated into robust profitability or growth, suggesting inefficiencies in capital allocation and business model execution.

Half-Yearly Performance: Modest Growth Masks Quarterly Volatility

On a half-yearly basis, AD Manum Finance reported net profit of ₹5.58 crores for H1 FY26 (April-September 2025), representing 27.40% growth compared to ₹4.38 crores in H1 FY25. However, this seemingly positive headline number is heavily distorted by the exceptional other income of ₹2.39 crores recorded in Q1 FY26. Stripping out this one-time gain reveals that normalised operating profitability has actually declined on a year-on-year basis.

The company's financial trend classification of "Flat" for Q2 FY26 by proprietary analysis accurately captures the stagnant nature of the business. Key negative factors identified include PAT (quarterly) falling 58.30% versus the previous four-quarter average, operating profit (PBDIT) at its lowest level, and earnings per share declining to ₹1.60, the lowest in recent periods. These indicators collectively point to a business struggling to generate consistent earnings momentum.

Peer Comparison: Significant Underperformance Across Metrics

When benchmarked against its NBFC peer group, AD Manum Finance's operational and financial metrics reveal concerning gaps. The company's ROE of 8.17% significantly lags the peer average, with competitors like Bridge Securities achieving 31.70% ROE, nearly four times higher. This stark differential highlights AD Manum's inferior capital efficiency and profitability generation capabilities.

The company's price-to-book value ratio of 0.69x suggests the market values the business below its book value, reflecting scepticism about the quality of assets and future earnings potential. Whilst this appears attractive on surface, it may represent a value trap rather than a genuine opportunity, given the deteriorating operational trends and weak return metrics. The low P/E ratio of 5.07x, whilst appearing cheap, must be viewed in context of declining earnings trajectory and structural business challenges.

AD Manum Finance's market capitalisation of ₹53.00 crores positions it as the second-largest in its immediate peer group, though all companies in this cohort are micro-caps with limited institutional following. The complete absence of FII, mutual fund, and insurance company holdings (all at 0.00%) reflects the lack of institutional confidence in the company's prospects and raises concerns about liquidity and corporate governance standards.

Valuation Analysis: Discount Reflects Fundamental Weakness

Despite the company's valuation grade of "Very Attractive" based on its low multiples, investors must recognise that cheap valuations alone do not constitute investment merit. The P/E ratio of 5.07x and P/BV of 0.69x represent significant discounts to both historical averages and peer group multiples, but these discounts appear justified given the deteriorating fundamentals and weak growth prospects.

The stock's 52-week range of ₹60.00 to ₹117.45 illustrates significant volatility, with the current price of ₹73.80 sitting 37.16% below the 52-week high. This substantial drawdown, combined with negative returns of 28.87% over the past year, reflects the market's reassessment of the company's value proposition as operational challenges have mounted.

The PEG ratio of 0.19x theoretically suggests attractive valuation relative to growth, but this metric is misleading given the company's inconsistent earnings trajectory and negative recent growth. The five-year sales growth of just 6.38% and EBIT growth of 11.84% indicate a low-growth, mature business lacking catalysts for meaningful expansion. Combined with the weak ROE of 8.17%, the company struggles to generate returns above its cost of capital, making it a value trap rather than a value opportunity.

Shareholding Pattern: Stable but Concentrated Promoter Base

The shareholding structure 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 the remaining 25.70%. This stability, whilst providing continuity, also reflects a lack of institutional interest and limited liquidity in the stock. The absence of any FII, mutual fund, or insurance participation (all at 0.00%) is particularly noteworthy and concerning for a listed financial services company.

The promoter group, led by entities like Agarwal Coal Corporation (36.93%), Vinod Kumar Agarwal (14.70%), and Agarwal Fuel Corporation Private Limited (5.95%), maintains strong control with no pledging of shares. Whilst this eliminates concerns about forced selling due to margin calls, the concentrated ownership structure and lack of institutional participation limit corporate governance oversight and market liquidity.

Stock Performance: Severe Underperformance Across All Timeframes

AD Manum Finance's stock price performance has been deeply disappointing across most meaningful timeframes. Over the past year, the stock has declined 28.87% whilst the Sensex gained 5.73%, resulting in a negative alpha of 34.60 percentage points. Year-to-date, the underperformance is even more stark, with the stock down 23.92% against the Sensex's 7.42% gain, translating to 31.34 percentage points of underperformance.

The three-month and six-month returns show marginal outperformance against the Sensex, with the stock gaining 3.94% and 6.16% respectively. However, these modest gains pale in comparison to the structural decline witnessed over longer periods and appear to be technical bounces rather than fundamental recovery. The recent single-day surge of 8.55% on October 31, 2025, following the quarterly results, likely represents short-term speculation rather than conviction buying, given the poor fundamentals underlying the results.

The longer-term returns paint a more complex picture. Over three years, the stock has delivered 84.50% returns with 46.32 percentage points of alpha, and over five years, it has generated 370.36% returns with 258.47 percentage points of outperformance. However, these historical gains are increasingly irrelevant to current investors, as they were achieved during different operating conditions and market dynamics. The recent deterioration in fundamentals suggests the company's best years may be behind it.

The stock's sector comparison reveals severe underperformance, with AD Manum Finance declining 28.87% over the past year whilst the broader NBFC sector gained 17.71%, resulting in 46.58 percentage points of underperformance. This massive divergence reflects company-specific issues rather than sector-wide challenges, indicating that the company's problems are structural rather than cyclical.

Technical Analysis: Bearish Trend with Limited Upside Visibility

From a technical perspective, AD Manum Finance exhibits a "Mildly Bearish" trend as of October 31, 2025, having recently shifted from a "Bearish" classification. The stock trades at ₹73.80, positioned above its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, which provides some short-term support. However, the proximity to these moving averages and the overall downtrend over the past year suggest limited upside momentum.

Key technical indicators present mixed signals. The MACD shows "Mildly Bullish" on a weekly basis but "Mildly Bearish" on a monthly basis, indicating short-term momentum that lacks longer-term conviction. Bollinger Bands signal "Bullish" on a weekly timeframe but "Mildly Bearish" monthly, again highlighting the disconnect between short-term price action and longer-term trends. The KST indicator remains "Bearish" on weekly and "Mildly Bearish" on monthly timeframes, whilst Dow Theory shows "Mildly Bearish" across both periods.

The stock's high beta of 1.50 indicates significantly higher volatility than the broader market, with a 47.22% annual volatility reading placing it in the "High Risk Low Return" category. This elevated volatility, combined with negative risk-adjusted returns of -0.61 over the past year, makes the stock unsuitable for risk-averse investors. The immediate support level lies at ₹60.00 (the 52-week low), whilst resistance is expected at the 100-day moving average of ₹71.40 and the 200-day moving average of ₹72.60.

Investment Thesis: Fundamental Weakness Outweighs Valuation Appeal

The investment case for AD Manum Finance is severely compromised by multiple structural weaknesses that overshadow any apparent valuation attractiveness. The company's proprietary Mojo Score of 31 out of 100 places it firmly in "SELL" territory, with the recommendation to "Consider selling" and "Look for exit opportunities." This assessment reflects the confluence of negative factors across valuation, quality, financial trends, and technical indicators.

The company's "Below Average" quality grade stems from its weak long-term financial performance, with an average ROE of just 8.17% that falls well short of the 15%+ benchmark for healthy financial services companies. The five-year sales growth of 6.38% and EBIT growth of 11.84% indicate a low-growth, mature business without visible catalysts for acceleration. The complete absence of institutional holdings (0.0%) further validates concerns about the company's quality and governance standards.

Key Strengths and Risk Factors

Outlook: What to Watch

AD Manum Finance's Q2 FY26 results underscore the challenges facing this micro-cap NBFC. Whilst the company maintains a conservative balance sheet and stable promoter base, these positives are overwhelmed by declining revenues, weak profitability metrics, and complete absence of institutional confidence. The 72.60% quarter-on-quarter profit decline, driven by normalisation of other income and underlying operational weakness, exposes the fragility of the earnings base. With no visible catalysts for improvement and a quality grade of "Below Average," the stock warrants a "SELL" rating despite its superficially attractive valuation multiples.