Andrew Yule Q2 FY26: Losses Return as Operational Woes Persist Despite Revenue Recovery

The quarter's results reveal a company struggling with fundamental operational inefficiencies despite a 27.40% sequential revenue improvement from Q1 FY26. With a market capitalisation of ₹1,240.96 crores and 89.25% government ownership, Andrew Yule operates 12 tea estates across Assam, Dooars, and Darjeeling, alongside manufacturing units in West Bengal and Tamil Nadu producing electrical equipment. However, the company's inability to translate revenue into profitability raises serious questions about its business model sustainability.

Financial Performance: Revenue Recovery Masks Operational Distress

Andrew Yule's Q2 FY26 financial performance presents a troubling picture of a company unable to control costs despite revenue improvements. Net sales in Q2 FY26 stood at ₹71.52 crores, representing a 27.40% sequential increase from Q1 FY26's ₹56.14 crores but a concerning 20.02% year-on-year decline from ₹89.42 crores in Q2 FY25. On a half-yearly basis (H1 FY26), the company reported combined revenues of ₹127.66 crores, marginally higher than H1 FY25's ₹144.95 crores, indicating persistent demand challenges across both tea and electrical equipment segments.

The company's core operational performance excluding other income deteriorated significantly, with operating profit (PBDIT excl OI) recording a loss of ₹4.61 crores in Q2 FY26 compared to a profit of ₹10.08 crores in Q2 FY25. This represents a staggering swing of ₹14.69 crores and an operating margin of negative 6.45% compared to positive 11.39% in the year-ago quarter. The sequential improvement from Q1 FY26's horrific negative 49.86% margin offers little comfort, as it merely reflects the base effect of an exceptionally weak previous quarter.

Employee costs remain the company's Achilles' heel, consuming ₹51.53 crores in Q2 FY26—virtually unchanged from ₹51.65 crores in Q2 FY25 despite the 20% revenue decline. This represents a staggering 72.04% of net sales, an unsustainable cost structure that severely limits profitability potential. The rigid employee cost base, typical of government-owned enterprises with legacy workforce obligations, continues to strangle operational flexibility and margin expansion possibilities.

Interest costs stood at ₹4.41 crores in Q2 FY26, down from ₹5.07 crores year-on-year, reflecting marginally lower debt levels. Depreciation remained stable at ₹1.61 crores. After accounting for tax expenses of ₹1.74 crores (an anomalous 457.89% tax rate due to the minimal profit before tax), the company reported a standalone net loss of ₹1.36 crores compared to a profit of ₹13.14 crores in Q2 FY25. The consolidated net loss of ₹0.02 crores represents a dramatic reversal from the ₹14.83 crores profit recorded in the corresponding quarter last year.

Operational Challenges: Dependency on Non-Operating Income Reveals Weak Core Business

Perhaps the most alarming aspect of Andrew Yule's financial performance is its heavy reliance on other income to mask operational losses. In Q2 FY26, other income stood at ₹11.00 crores, nearly matching Q2 FY25's ₹11.29 crores. However, Q1 FY26 saw an extraordinary spike to ₹59.71 crores in other income—representing 106.36% of that quarter's net sales—which artificially boosted profitability and masked the underlying operational distress. This pattern of volatile non-operating income, ranging from ₹5.35 crores to ₹59.71 crores across recent quarters, raises questions about the sustainability and quality of reported earnings.

The company's return on equity (ROE) has collapsed to negative 0.85% for the latest fiscal year, a dramatic deterioration from the already weak 3.48% average over recent years. This indicates that shareholder capital is being destroyed rather than generating returns. The return on capital employed (ROCE) stands at an abysmal negative 21.08%, signalling that the company is failing to generate adequate returns on the total capital deployed in its business operations. These metrics place Andrew Yule among the weakest performers in the FMCG sector and raise fundamental questions about the viability of its current business model.

The company's balance sheet reveals shareholder funds of ₹339.01 crores as of March 2025, marginally down from ₹339.32 crores in the previous year. Long-term debt has declined to ₹1.53 crores from ₹3.77 crores, resulting in a low debt-to-equity ratio of 0.20. However, current liabilities have surged to ₹363.02 crores from ₹310.54 crores, driven by increased trade payables of ₹105.44 crores (up from ₹77.32 crores) and other current liabilities of ₹123.79 crores (up from ₹101.85 crores). This deterioration in working capital management suggests potential liquidity pressures despite the company's low formal debt levels.

The Tea Plantation Challenge: Structural Headwinds in a Declining Industry

Andrew Yule's tea business, which operates 12 estates across premium growing regions including Darjeeling, Assam, and Dooars, faces structural challenges that extend beyond company-specific issues. The Indian tea plantation industry has been grappling with rising labour costs, climate change impacts affecting yields, and intense competition from lower-cost producers in Africa and Southeast Asia. The company's inability to generate consistent operating profits despite owning estates in prestigious tea-growing regions suggests either poor operational management, unfavourable cost structures, or both.

The electrical equipment manufacturing division, operating from facilities in Kalyani (West Bengal) and Chennai (Tamil Nadu), produces transformers, regulators, circuit breakers, and industrial fans. However, this segment appears equally challenged, with no clear evidence of competitive advantages or market leadership positions. The tepid 0.30% revenue growth in FY25 compared to FY24 (₹310 crores vs ₹309 crores) indicates stagnant demand and limited market share gains despite India's infrastructure development boom that has benefited many electrical equipment manufacturers.

The company's average sales to capital employed ratio of just 0.73x suggests highly inefficient asset utilisation. For every rupee of capital employed, the company generates only 73 paise of sales—well below industry benchmarks and indicative of underutilised capacity, obsolete equipment, or poor asset management. The negative EBIT to interest coverage ratio of negative 5.12x over recent years confirms that the company cannot even service its minimal interest obligations from operating profits, instead relying on other income and working capital adjustments.

Industry Leadership: How Andrew Yule Compares to Peers

When benchmarked against FMCG sector peers, Andrew Yule's valuation and quality metrics reveal a company trading at unjustified multiples relative to its operational performance. The stock trades at a price-to-earnings ratio of 63.17x based on trailing twelve-month earnings, significantly higher than peers like Jindal Photo (6.22x) and HMA Agro Industries (17.42x), despite delivering far inferior returns on equity and profitability metrics.

Andrew Yule's return on equity of 3.48% ranks as the second-lowest among the peer group, ahead only of Godavari Biorefineries' 6.45%. Meanwhile, better-managed companies like HMA Agro Industries generate ROE of 17.10% and Jindal Photo delivers 15.64%, demonstrating that profitability is achievable even in challenging FMCG segments. The company's price-to-book value of 3.69x appears particularly unjustified given the negative returns on equity, suggesting the market has not fully repriced the stock to reflect its deteriorating fundamentals.

The peer comparison reveals that Andrew Yule trades at a significant premium to its intrinsic value. Companies with similar or better ROE profiles trade at substantially lower P/E multiples, indicating that Andrew Yule's current valuation of ₹25.38 per share (market cap ₹1,240.96 crores) embeds unrealistic growth and turnaround expectations that recent quarterly results have comprehensively failed to justify.

Valuation Analysis: Expensive for a Structurally Challenged Business

Andrew Yule's valuation metrics present a paradox: a company with persistently negative operating margins and deteriorating return ratios trading at premium multiples. The stock's P/E ratio of 63.17x compares unfavourably to the FMCG sector average P/E of approximately 70x, but this comparison is misleading given the vast quality differential. High-quality FMCG companies with consistent double-digit growth and strong ROE profiles deserve premium valuations; Andrew Yule, with its structural challenges and capital destruction, does not.

The price-to-book value of 3.69x suggests investors are paying ₹3.69 for every rupee of book value, despite the company generating negative returns on that book value. The enterprise value to EBITDA multiple of negative 16.59x and EV/EBIT of negative 13.01x reflect the company's negative operating profitability, making traditional valuation metrics largely meaningless. The EV to sales ratio of 4.22x appears elevated for a business with negative margins and stagnant growth, particularly when compared to profitable FMCG companies trading at similar or lower multiples.

The stock has been classified as "Risky" in terms of valuation since June 2018, having previously been categorised as "Very Expensive" and "Expensive" during earlier periods. This persistent overvaluation reflects either investor misunderstanding of the company's fundamental challenges or speculative positioning based on government ownership and potential restructuring hopes. The absence of dividend payments (latest dividend of ₹0 per share) means investors derive no income return while waiting for a turnaround that quarterly results suggest remains elusive.

At the current price of ₹25.38, the stock trades 42.77% below its 52-week high of ₹44.35 but remains 12.05% above its 52-week low of ₹22.65. The technical setup suggests the stock is in a sustained downtrend, with the price trading below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating persistent selling pressure and lack of investor conviction.

Shareholding: Government Control Limits Corporate Governance Flexibility

Andrew Yule's shareholding pattern reveals a highly concentrated ownership structure with minimal institutional participation, which has significant implications for corporate governance and potential restructuring initiatives. The President of India holds 89.25% of the company through government ownership, a stake that has remained unchanged across recent quarters. This dominant government control, while providing stability, also limits the company's ability to undertake aggressive restructuring measures such as workforce rightsising or asset divestments that might be necessary to restore profitability.

The complete absence of foreign institutional investor (FII) and mutual fund holdings signals institutional investors' lack of confidence in the company's turnaround prospects. Total institutional holdings stand at a mere 2.21% (other DIIs), with only 2 mutual funds holding positions—an extraordinarily low figure for a company with over ₹1,200 crores in market capitalisation. This institutional neglect reflects concerns about corporate governance limitations inherent in government-controlled enterprises and scepticism about management's ability to implement necessary operational reforms.

Non-institutional shareholders hold 8.55%, representing retail investors and potentially speculative traders attracted by the stock's volatility and government ownership. The absence of promoter pledging (0.0%) is a minor positive, eliminating concerns about forced selling due to margin calls. However, this benefit is overshadowed by the fundamental weakness in the company's operational performance and the constraints imposed by majority government ownership on implementing shareholder-friendly measures.

Stock Performance: Sustained Underperformance Across All Timeframes

Andrew Yule's stock price performance has been dismal across virtually all meaningful timeframes, with the company massively underperforming both the broader market and its FMCG sector peers. Over the past year, the stock has declined 33.26% while the Sensex gained 8.42%, resulting in negative alpha of 41.68 percentage points. This underperformance accelerates over shorter periods: the stock is down 35.34% year-to-date versus the Sensex's 7.65% gain (negative alpha of 42.99 percentage points), and down 12.42% over six months versus the Sensex's 3.42% gain.

The stock's underperformance versus the FMCG sector is even more pronounced. Over the past year, whilst Andrew Yule declined 33.26%, the broader FMCG sector gained 24.72%, resulting in sectoral underperformance of 57.98 percentage points. This massive gap reflects the fundamental quality differential between Andrew Yule and better-managed FMCG companies that have delivered consistent earnings growth and margin expansion.

The stock exhibits high volatility with an annual volatility of 36.83% compared to the Sensex's 12.26%, resulting in a beta of 1.35. This high beta classification means the stock is significantly more volatile than the broader market, amplifying losses during market downturns whilst failing to capture proportionate gains during rallies. The risk-adjusted return of negative 0.90 over the past year (versus the Sensex's positive 0.69) confirms that investors are being inadequately compensated for the elevated risk they bear by holding this stock.

From a technical perspective, the stock remains in a confirmed bearish trend since October 31, 2025, when it broke down from a "Mildly Bearish" pattern at ₹26.66. The stock trades below all major moving averages, with the 200-day moving average at ₹29.27 representing strong overhead resistance. The MACD indicator shows mildly bullish signals on the weekly chart but bearish on monthly timeframes, whilst Bollinger Bands indicate bearish conditions across both weekly and monthly periods. The immediate support level rests at the 52-week low of ₹22.65, whilst resistance emerges at the 20-day moving average of ₹25.96.

Investment Thesis: Multiple Red Flags Outweigh Limited Positives

Andrew Yule's investment proposition is fundamentally compromised by structural challenges that appear difficult to resolve within a reasonable timeframe. The company's Mojo Score of 12 out of 100, placing it firmly in "Strong Sell" territory, reflects the confluence of weak fundamentals, deteriorating financial trends, bearish technical indicators, and risky valuation. The quality assessment of "Below Average" acknowledges the company's long-term inability to generate acceptable returns on capital or achieve operational profitability.

The financial trend classification of "Flat" for Q2 FY26 masks underlying deterioration. Whilst the company posted higher sales for the latest six months at ₹20.12 crores, the quarterly performance reveals persistent operational losses, with Q2 FY26 net sales declining 20.02% year-on-year and profit before tax (excluding other income) falling 398.31%. The alarming statistic that non-operating income represents 2,894.74% of profit before tax underscores the fundamental weakness of the core business operations.

The company's competitive positioning offers few reasons for optimism. In the tea plantation business, Andrew Yule lacks the brand strength of companies like Tata Global Beverages or the operational efficiency of better-managed estates. In electrical equipment manufacturing, it faces intense competition from established players with superior technology, distribution networks, and customer relationships. The stagnant revenue growth of just 0.30% in FY25 and persistent negative operating margins suggest the company is losing market share and relevance in both segments.

Outlook: What to Watch Going Forward

Andrew Yule faces a challenging path ahead, with limited near-term catalysts for operational improvement and multiple structural headwinds that require fundamental business model transformation. Investors considering this stock should monitor specific metrics and developments that could signal either genuine turnaround progress or further deterioration.

The key question for Andrew Yule is whether management can implement meaningful operational reforms to restore profitability, or whether the company will continue its pattern of loss-making core operations masked by volatile other income. Given the constraints imposed by government ownership, legacy workforce obligations, and competitive pressures in both tea and electrical equipment segments, the probability of a genuine turnaround appears low in the near to medium term.