Adroit Infotech Q2 FY26: Growth Momentum Fades as Margins Compress and Losses Mount

The company's performance reveals a troubling dichotomy: whilst top-line growth remains robust with quarterly revenue climbing 16.38% sequentially to ₹11.44 crores, profitability metrics have deteriorated sharply. The PAT margin contracted to 6.73% in Q2 FY26 from 8.55% in Q1 FY26, reflecting mounting cost pressures and operational inefficiencies that have plagued the organisation throughout the fiscal year. Trading at ₹9.54 per share as of February 3, 2026, Adroit Infotech's stock languishes 48.68% below its 52-week high of ₹18.59, with technical indicators firmly entrenched in bearish territory.

Financial Performance: Revenue Growth Masks Margin Erosion

Adroit Infotech's Q2 FY26 results present a complex narrative of top-line expansion coupled with profitability challenges. Net sales surged 16.38% quarter-on-quarter to ₹11.44 crores, building on the momentum from Q1 FY26's ₹9.83 crores. On a year-on-year basis, revenue growth accelerated sharply at 61.81%, reflecting the company's success in securing new client engagements and expanding its service delivery footprint. However, this growth trajectory stands in stark contrast to the deteriorating margin profile that has characterised the company's recent performance.

Operating profit (PBDIT) excluding other income stood at ₹1.26 crores in Q2 FY26, translating to an operating margin of 11.01%—a sequential compression of 262 basis points from Q1 FY26's 13.63%. This margin contraction reflects escalating employee costs, which climbed to ₹5.86 crores despite declining from Q1 FY26's ₹6.14 crores. The employee cost-to-revenue ratio of 51.22% in Q2 FY26, whilst an improvement from Q1 FY26's 62.46%, remains elevated and underscores the labour-intensive nature of the company's business model.

Net profit of ₹0.77 crores in Q2 FY26 declined 8.33% sequentially, even as revenue expanded robustly. The PAT margin of 6.73% represents a 182-basis-point sequential contraction, signalling deteriorating profitability conversion. Other income contributed ₹0.67 crores in Q2 FY26, marginally higher than Q1 FY26's ₹0.64 crores, providing modest support to the bottom line. Interest expenses climbed to ₹0.41 crores from ₹0.36 crores, reflecting the company's increased debt burden as it finances working capital requirements and operational expansion.

The company's half-yearly performance for H1 FY26 (April-September 2025) reveals cumulative net sales of ₹21.27 crores, up significantly from the comparable period's performance. However, the H1 FY26 net profit of ₹1.61 crores includes the impact of Q1 FY26's stronger profitability, masking the sequential deterioration observed in Q2 FY26. The tax rate of 25.96% in Q2 FY26 normalised from Q1 FY26's 27.59%, yet remains elevated compared to the 11.76% recorded in Q2 FY25, further pressuring net profitability.

Operational Challenges: Weak Returns and Capital Inefficiency

Adroit Infotech's operational metrics paint a concerning picture of capital inefficiency and suboptimal returns. The company's average return on equity (ROE) stands at just 6.69%, significantly below peer averages and indicative of poor capital productivity. This weak ROE reflects the company's struggle to generate adequate returns for shareholders despite maintaining a relatively conservative balance sheet with minimal long-term debt of ₹0.42 crores as of March 2025.

The average return on capital employed (ROCE) of 7.67% further underscores the operational challenges, with the latest ROCE deteriorating to negative 2.47%. This decline signals that the company is destroying value rather than creating it, as operating profits fail to adequately compensate for the capital deployed in the business. The EBIT-to-interest coverage ratio of 1.27 times remains uncomfortably thin, leaving minimal cushion for servicing debt obligations should operating performance deteriorate further.

Balance sheet quality remains mixed. Shareholder funds expanded dramatically to ₹74.68 crores in March 2025 from ₹35.35 crores in March 2024, driven primarily by a capital infusion that increased share capital to ₹54.18 crores from ₹29.79 crores. However, this equity dilution has not translated into improved operational performance or enhanced returns. Current assets of ₹67.37 crores provide adequate liquidity, yet the company's negative cash flow from operations of ₹1.00 crore in FY25 raises questions about sustainable cash generation capabilities.

The Margin Compression Mystery: Cost Pressures Mount

The sequential margin compression observed in Q2 FY26 warrants closer examination, as it reveals structural challenges within Adroit Infotech's business model. Employee costs, whilst declining in absolute terms from ₹6.14 crores in Q1 FY26 to ₹5.86 crores in Q2 FY26, remain disproportionately high relative to revenue. The inability to achieve operating leverage despite 16.38% sequential revenue growth suggests pricing pressure, project mix deterioration, or inefficient resource utilisation.

The company's gross profit margin of 13.29% in Q2 FY26 contracted from Q1 FY26's 16.48%, indicating that revenue growth came at the expense of profitability. This pattern suggests aggressive pricing to secure new business or a shift towards lower-margin service offerings. The operating margin excluding other income of 11.01% in Q2 FY26, whilst positive, remains substantially below the 28.79% achieved in March 2024, highlighting the erosion of operational efficiency over the past year.

Depreciation charges remained stable at ₹0.47 crores in Q2 FY26, consistent with Q1 FY26's ₹0.46 crores, suggesting minimal capital expenditure activity. Fixed assets of ₹20.19 crores as of March 2025 represent the bulk of the company's asset base, yet the lack of meaningful capex raises questions about the company's ability to invest in technology infrastructure and service delivery capabilities necessary to compete in the evolving IT services landscape.

Peer Comparison: Trailing the Pack on Key Metrics

When benchmarked against peers in the Computers - Software & Consulting sector, Adroit Infotech's competitive positioning appears weak across multiple dimensions. The company's average ROE of 6.69% lags significantly behind sector leaders such as Ampvolts (28.02%) and Austere Systems (35.38%), reflecting inferior capital efficiency and profitability generation. Even peer Vedavaag Systems, with a comparable ROE of 6.18%, trades at a substantially lower price-to-book multiple of 0.32x compared to Adroit's 0.67x.

The company's inability to command a positive P/E multiple reflects its loss-making status on a trailing twelve-month basis, placing it at a significant disadvantage relative to profitable peers. Whilst the price-to-book ratio of 0.67x suggests the stock trades below book value, this discount appears justified given the weak ROE and deteriorating profitability trends. Competitors with similar or lower ROE profiles, such as Bodhtree Consulting (6.68% ROE) and Sancode Technologies (4.42% ROE), command substantially higher P/BV multiples of 2.37x and 10.46x respectively, suggesting market recognition of superior growth prospects or business quality.

Adroit Infotech's one-year stock return of negative 45.92% dramatically underperforms the sector's positive 17.68% return, resulting in a 63.60 percentage point underperformance. This persistent value destruction extends across all timeframes, with the stock declining 33.95% over three years whilst the Sensex gained 37.63%—a staggering 71.58 percentage point negative alpha. The company's market capitalisation of ₹52.00 crores positions it as the fourth-largest within its peer group, yet this modest scale offers no competitive advantages in an industry increasingly dominated by larger, more diversified players.

Valuation Analysis: Deep Discount Fails to Justify Risk

Adroit Infotech's current valuation metrics present a paradox: whilst the stock trades at seemingly attractive multiples, the underlying business fundamentals fail to support even these depressed valuations. The price-to-book ratio of 0.67x implies the market values the company's assets at a 33% discount to book value, typically a signal of potential value. However, this discount reflects justified scepticism about the company's ability to generate adequate returns on those assets, as evidenced by the negative 2.47% latest ROCE and negative 3.07% latest ROE.

The enterprise value-to-EBITDA multiple of negative 73.86x and EV-to-EBIT of negative 30.27x appear nonsensical at first glance, yet these figures accurately capture the company's current financial distress. With negative enterprise value driven by cash holdings exceeding market capitalisation, and negative operating profits on a trailing basis, traditional valuation multiples lose their analytical utility. The EV-to-sales ratio of 1.88x provides a more meaningful benchmark, suggesting the market values the company's revenue stream at less than twice annual sales—a modest premium that reflects limited confidence in profitability conversion.

The company's valuation grade has deteriorated sharply, transitioning from "Very Attractive" in October-November 2024 to "Risky" by May 2025. This downgrade reflects the market's growing recognition of fundamental deterioration that renders even deeply discounted valuations unattractive. The absence of dividend payments (last dividend of ₹0.50 per share paid in August 2017) eliminates any income component from the investment proposition, forcing investors to rely solely on capital appreciation that has consistently disappointed.

At the current price of ₹9.54, the stock trades 48.68% below its 52-week high of ₹18.59 but just 12.24% above its 52-week low of ₹8.50. This proximity to the annual low, combined with persistent technical weakness, suggests limited downside cushion despite the apparent valuation discount. The book value per share of ₹13.59 provides a theoretical floor, yet market prices can remain below book value indefinitely when returns fail to justify the capital employed.

Shareholding Pattern: Stable Promoter Base Offers Limited Comfort

The shareholding structure of Adroit Infotech reveals a stable promoter base controlling 37.47% of equity as of December 2025, unchanged from September 2025 but marginally higher than the 36.92% held in December 2024. The promoter group, led by Softpoint Technologies Private Limited (20.23%), Sudhakiran Reddy Sunkerneni (14.39%), and Kanthi Reddy Sunkerneni (2.85%), has maintained consistent ownership through the company's recent challenges, providing some governance stability.

The complete absence of institutional investors—zero holdings from foreign institutional investors, mutual funds, insurance companies, and other domestic institutional investors—represents a significant red flag. This institutional vacuum suggests professional money managers have thoroughly evaluated and rejected the investment opportunity, finding the risk-reward profile unattractive even at current depressed valuations. The 62.53% non-institutional holding comprises primarily retail investors who may lack the resources or expertise to conduct rigorous due diligence.

The absence of promoter pledging provides modest reassurance regarding governance and financial stability at the promoter level. However, the lack of meaningful promoter buying despite the stock's 45.92% decline over the past year raises questions about management's confidence in the company's turnaround prospects. The marginal 55-basis-point increase in promoter holding from December 2024 to December 2025 represents minimal capital commitment relative to the magnitude of value destruction experienced by shareholders.

Stock Performance: Persistent Underperformance Across All Timeframes

Adroit Infotech's stock price performance presents a uniformly dismal picture across all investment horizons, with the company destroying shareholder value relative to both benchmark indices and sector peers. The one-year return of negative 45.92% compares catastrophically to the Sensex's positive 8.49% gain, generating a negative alpha of 54.41 percentage points. This underperformance extends systematically across timeframes, with the stock declining 46.76% over two years whilst the Sensex gained 16.17%, and falling 33.95% over three years against the Sensex's 37.63% advance.

The stock's technical profile reinforces the bearish fundamental narrative, with the current trend classified as "Bearish" since December 8, 2025, when it broke down from "Mildly Bearish" at ₹10.15. The stock trades below all key moving averages—5-day (₹9.43), 20-day (₹9.75), 50-day (₹10.00), 100-day (₹10.52), and 200-day (₹10.85)—a configuration that typically signals sustained downward momentum. Technical indicators including MACD, Bollinger Bands, and KST all flash bearish signals on both weekly and monthly timeframes, whilst only RSI provides a mildly bullish counterpoint.

The stock's beta of 1.50 classifies it as a high-beta security, meaning it exhibits 50% greater volatility than the broader market. Combined with the negative returns, this high volatility translates into a risk-adjusted return of negative 1.00, placing the stock firmly in the "HIGH RISK LOW RETURN" category—the worst possible quadrant for investors. The annualised volatility of 45.70% compared to the Sensex's 11.41% underscores the wild price swings that have characterised the stock's trading pattern, creating a treacherous environment for both long-term investors and short-term traders.

Investment Thesis: Multiple Red Flags Overwhelm Limited Positives

The investment case for Adroit Infotech faces overwhelming headwinds that far outweigh any potential positives. The company's Mojo Score of 23 out of 100—firmly in "Strong Sell" territory—reflects a comprehensive assessment across four critical dimensions: valuation (Risky), quality (Below Average), financial trend (Positive in near term), and technical trend (Bearish). This multi-dimensional weakness suggests systematic problems rather than temporary challenges.

The "Below Average" quality assessment stems from the company's weak long-term financial performance, particularly the catastrophic five-year EBIT CAGR of negative 210.67%. This operating profit erosion, combined with average ROCE of just 7.67% and average ROE of 6.69%, indicates systematic value destruction that compounds annually. The complete absence of institutional investors—zero holdings from FIIs, mutual funds, and insurance companies—provides independent validation of the quality concerns, as professional investors have voted with their feet by avoiding the stock entirely.

The "Positive" near-term financial trend designation offers limited comfort, as it primarily reflects the Q2 FY26 achievement of highest-ever quarterly net sales of ₹11.44 crores. However, this top-line success has not translated into proportionate profitability improvement, with operating margins compressing and PAT margins declining sequentially. The sustainability of this positive trend remains highly questionable given the structural margin pressures and deteriorating returns on capital.

Outlook: Critical Monitoring Points and Red Flags

The path forward for Adroit Infotech requires dramatic operational improvements across multiple dimensions to reverse the current trajectory of value destruction. Investors considering any position in the stock must vigilantly monitor specific metrics that will signal whether management can execute a credible turnaround or whether the deterioration will accelerate.

The company's financial trend designation of "Positive" provides a narrow window for management to demonstrate sustainable improvement. However, this positive classification rests primarily on achieving highest-ever quarterly sales rather than demonstrable profitability enhancement or return improvement. The Q3 FY26 results will prove critical in determining whether the Q2 FY26 performance represents genuine operational improvement or merely temporary revenue spikes that fail to translate into sustainable value creation.

The technical setup reinforces the bearish fundamental narrative, with the stock trapped in a persistent downtrend below all major moving averages. The immediate resistance at ₹9.75 (20-day MA) and stronger resistance at ₹10.85 (200-day MA) create formidable technical barriers that will require significant positive catalysts to overcome. Conversely, the proximity to the 52-week low of ₹8.50 provides minimal downside cushion, with a break below this level likely to trigger accelerated selling pressure.