Adroit Infotech Q2 FY26: Revenue Surge Masks Profitability Concerns as Stock Tumbles 52%

Whilst the company achieved impressive year-on-year revenue growth of 61.81% in Q2 FY26, reaching ₹11.44 crores, the profit trajectory remains concerning. Net profit for Q2 FY26 stood at ₹0.77 crores, representing a 71.11% increase year-on-year but a sequential decline from Q1 FY26's ₹0.84 crores. The company's profitability margins have compressed substantially, with operating margins (excluding other income) declining to 11.01% in Q2 FY26 from 13.63% in the previous quarter.

The company's financial performance reveals a troubling disconnect between top-line growth and bottom-line delivery. Whilst Adroit Infotech has successfully expanded its revenue base, escalating employee costs and operational inefficiencies have eroded profitability. The firm's proprietary Mojo Score stands at a dismal 23 out of 100, firmly in "Strong Sell" territory, reflecting deep-seated fundamental concerns that extend beyond quarterly volatility.

Financial Performance: Growth Without Quality

Adroit Infotech's Q2 FY26 results present a paradox: impressive revenue expansion coupled with deteriorating profitability metrics. Net sales for Q2 FY26 reached ₹11.44 crores, marking a 16.38% sequential increase and a remarkable 61.81% year-on-year surge. This top-line momentum represents the company's highest quarterly revenue on record, suggesting successful client acquisition and project execution.

However, the cost structure tells a concerning story. Employee costs surged to ₹5.86 crores in Q2 FY26, representing 51.22% of revenue. Whilst this declined slightly from ₹6.14 crores in Q1 FY26, the employee cost-to-revenue ratio remains elevated compared to historical norms. Operating profit before depreciation, interest, tax, and other income stood at ₹1.26 crores in Q2 FY26, yielding an operating margin of just 11.01%, down from 13.63% in the previous quarter.

The company's profit after tax of ₹0.77 crores in Q2 FY26 translated to a PAT margin of 6.73%, substantially lower than the 23.74% achieved in Mar'24. This margin compression reflects not only higher employee costs but also increased interest expenses (₹0.41 crores) and depreciation charges (₹0.47 crores). The tax rate normalised to 25.96% in Q2 FY26 after anomalous readings in previous quarters.

On a half-yearly basis for H1 FY26, the company reported consolidated net profit of ₹1.61 crores on revenues of ₹21.27 crores, representing a PAT margin of 7.57%. This compares unfavourably to historical performance, particularly the exceptionally strong Mar'24 quarter when PAT margins exceeded 23%.

Operational Challenges: Weak Returns on Capital

Beyond quarterly fluctuations, Adroit Infotech's structural profitability metrics reveal significant operational challenges. The company's average return on equity over the assessment period stands at just 6.69%, substantially below industry benchmarks and indicative of inefficient capital deployment. This weak ROE suggests the company struggles to generate adequate returns for shareholders relative to the equity capital employed.

The average return on capital employed fares marginally better at 9.92%, but remains unimpressive for a software consulting business that theoretically operates with asset-light economics. More troubling, the latest ROCE calculation shows a negative 2.74%, indicating the company's most recent operational performance failed to generate positive returns on deployed capital after accounting for other income.

The balance sheet reveals rapid expansion funded primarily through equity dilution. Share capital ballooned from ₹29.79 crores in Mar'24 to ₹54.18 crores in Mar'25, representing an 81.87% increase. This aggressive equity fundraising diluted existing shareholders whilst reserves and surplus grew modestly from ₹3.62 crores to ₹19.43 crores. Shareholder funds more than doubled to ₹74.68 crores in Mar'25 from ₹35.35 crores the prior year.

Current assets surged to ₹67.37 crores in Mar'25 from ₹16.23 crores in Mar'24, primarily driven by cash inflows from equity fundraising. However, current liabilities also increased substantially to ₹19.80 crores from ₹6.41 crores, suggesting working capital pressures. The company maintains minimal long-term debt at ₹0.42 crores, resulting in a low debt-to-equity ratio, though this provides limited comfort given the weak return profile.

The Software Sector Context: Challenging Operating Environment

Adroit Infotech operates in the highly competitive Computers - Software & Consulting sector, where it holds the distinction of being the largest company by market capitalisation at ₹58.00 crores. However, this sector leadership position reflects the micro-cap nature of the peer group rather than genuine market dominance. The company competes with other small-cap software firms including Sylph Technologies, Bodhtree Consulting, Palred Technologies, Austere Systems, and Globalspace Technologies.

The software consulting industry has faced headwinds from global economic uncertainty, technology spending moderation, and intense competition for talent. Employee costs typically represent the largest expense category for software services firms, and Adroit's elevated employee cost ratio of over 50% of revenue suggests either aggressive hiring, wage inflation pressures, or underutilised capacity.

The company's five-year sales growth CAGR of 37.01% appears impressive on the surface, reflecting recovery from a low base. However, the five-year EBIT growth CAGR stands at negative 210.67%, a catastrophic decline that underscores fundamental operational challenges. This negative EBIT growth trajectory over an extended period represents a severe quality concern and explains the company's "Below Average" quality grade.

Adroit Infotech's valuation multiples reflect its challenged fundamentals. The company trades at a price-to-book ratio of 0.80x, below the peer average of approximately 1.70x, suggesting the market assigns little premium to the company's asset base. The company's loss-making status on a trailing twelve-month basis renders traditional P/E analysis meaningless. Amongst its peer group, Adroit's ROE of 6.69% positions it in the middle tier, ahead of Sylph Technologies (1.54%), Palred Technologies (1.09%), and Globalspace Technologies (5.70%), but substantially behind Austere Systems' impressive 35.38% ROE.

Valuation Analysis: Risky Despite Low Multiples

Adroit Infotech's valuation grade stands at "Risky" despite superficially attractive multiples, reflecting fundamental concerns that overshadow numerical cheapness. The stock trades at ₹10.91, representing a price-to-book value of 0.80x based on book value per share of ₹13.59. This below-book valuation typically signals either distressed fundamentals or exceptional value; in Adroit's case, the evidence points decisively toward the former.

The company's enterprise value metrics paint an unusual picture. EV/EBITDA stands at negative 73.91x and EV/EBIT at negative 30.29x, mathematical artefacts arising from the company's challenged profitability profile. The EV/Sales ratio of 1.88x appears reasonable for a software services firm, but this metric alone provides limited insight without corresponding profitability.

The stock's dramatic decline from its 52-week high of ₹23.95 to the current ₹10.91 represents a 54.45% correction, placing shares just 14.60% above the 52-week low of ₹9.52. This price action reflects deteriorating investor sentiment as the market has repriced the stock downward following disappointing financial performance and raised concerns about the sustainability of the business model.

The company's valuation grade history reveals a steady deterioration. The stock was rated "Very Attractive" as recently as November 2024 before declining through "Attractive" to the current "Risky" classification by May 2025. This downgrade trajectory mirrors the company's operational challenges and suggests the market has progressively lost confidence in management's ability to deliver sustainable profitability.

Shareholding: Stable Promoter Base, Zero Institutional Interest

Adroit Infotech's shareholding pattern reveals a promoter-dominated structure with complete absence of institutional participation. Promoter holding stood at 37.47% as of Sep'25, marginally higher than the 37.34% in Jun'25, reflecting modest sequential accumulation of 13 basis points. The promoter group includes Softpoint Technologies Private Limited (20.23%), Sudhakiran Reddy Sunkerneni (14.39%), and Kanthi Reddy Sunkerneni (2.85%).

The complete absence of foreign institutional investors, mutual funds, insurance companies, and other domestic institutional investors represents a significant red flag. Zero institutional ownership suggests professional investors have avoided the stock entirely, likely due to concerns about liquidity, governance, financial performance, or business quality. The remaining 62.53% shareholding comprises non-institutional investors, predominantly retail shareholders.

Positively, promoters have not pledged any shares, eliminating concerns about forced selling or financial distress at the promoter level. However, the declining promoter stake from 39.06% in Sep'24 to 37.47% in Sep'25 suggests modest dilution, likely related to the equity capital raise executed during FY25.

Stock Performance: Severe Underperformance Across All Timeframes

Adroit Infotech's stock price performance has been catastrophic across virtually all meaningful timeframes, with the shares generating massive negative alpha relative to the Sensex benchmark. The stock declined 0.82% on the most recent trading day to ₹10.91, underperforming the Sensex's 0.33% decline by 49 basis points.

The year-to-date performance stands out as particularly disastrous, with the stock plummeting 44.59% in 2025 whilst the Sensex gained 8.36%, resulting in negative alpha of 52.95 percentage points. Over the past year, shares have collapsed 52.50%, generating negative alpha of nearly 62 percentage points. This represents wealth destruction of epic proportions for shareholders who held through this period.

The stock's risk-adjusted return profile is equally concerning. With annualised volatility of 44.26% over the past year and negative absolute returns of 52.50%, the stock has delivered a risk-adjusted return of negative 1.19. This places Adroit firmly in the "HIGH RISK LOW RETURN" category, the worst possible quadrant for investors. The stock's beta of 1.50 indicates it moves 50% more than the broader market, amplifying both gains and losses, though recent history shows only the latter.

Relative to its sector, Adroit has drastically underperformed. The Computers - Software & Consulting sector delivered a positive 4.01% return over the past year, meaning Adroit underperformed its immediate peer group by 56.51 percentage points. This sector-relative underperformance suggests company-specific issues rather than broader industry headwinds.

Technical Analysis: Mildly Bearish Trend with Limited Support

The technical picture for Adroit Infotech remains challenging, with the stock in a "Mildly Bearish" trend since September 17, 2025. The shares trade below all key moving averages, including the 5-day MA (₹11.13), 20-day MA (₹11.43), 50-day MA (₹11.03), 100-day MA (₹10.95), and 200-day MA (₹12.21), indicating persistent selling pressure across all timeframes.

Technical indicators present mixed signals. The MACD shows "Mildly Bullish" on the weekly chart but "Bearish" on the monthly timeframe, suggesting short-term stabilisation within a longer-term downtrend. Bollinger Bands indicate "Bearish" signals on both weekly and monthly charts, confirming the stock remains under pressure. The KST indicator shows "Bullish" weekly but "Bearish" monthly, whilst OBV (On-Balance Volume) registers "Mildly Bullish" weekly, suggesting some accumulation despite price weakness.

The stock finds immediate support at the 52-week low of ₹9.52, just 12.74% below current levels, providing a thin cushion against further declines. Immediate resistance emerges at the 20-day moving average of ₹11.43, followed by the 100-day MA at ₹10.95 and the psychologically important 200-day MA at ₹12.21. The 52-week high of ₹23.95 represents distant resistance, more than doubling the current price.

Investment Thesis: Fundamental Deterioration Outweighs Growth Narrative

Adroit Infotech's investment thesis rests on shaky foundations despite superficial revenue growth. The company's Mojo Score of 23 out of 100 reflects severe fundamental concerns across multiple dimensions. The proprietary assessment framework evaluates four key parameters: Valuation (Risky), Quality Grade (Below Average), Financial Trend (Positive), and Technical Trend (Mildly Bearish).

The "Below Average" quality grade stems from the company's catastrophic five-year EBIT growth CAGR of negative 210.67%, weak average ROCE of 9.92%, anaemic average ROE of 6.69%, and elevated tax ratio of 51.60%. These metrics collectively indicate a business struggling with fundamental profitability challenges that extend well beyond cyclical factors.

The lone bright spot—the "Positive" financial trend grade—reflects recent quarterly improvements including highest-ever quarterly net sales of ₹11.44 crores and higher half-yearly PAT of ₹1.61 crores. However, this positive trend assessment appears increasingly disconnected from underlying quality metrics and may prove ephemeral if margin pressures persist.

Key Strengths & Risk Factors

Outlook: What to Watch

The path forward for Adroit Infotech requires urgent management focus on profitability improvement. Whilst revenue growth provides a foundation, the company must demonstrate it can convert top-line expansion into sustainable bottom-line performance. The absence of institutional investors suggests professional money managers remain unconvinced about the quality of earnings and business sustainability.

For the stock to re-rate meaningfully, the company needs to achieve several milestones: consistent PAT margins above 10-12%, ROE improvement toward 12-15%, sequential profit growth for at least three quarters, and institutional investor participation. Until these fundamental improvements materialise, the stock is likely to remain under pressure despite low absolute valuation multiples.