Apar Industries Q3 FY26: Margin Pressures Cloud Strong Revenue Growth

With a market capitalisation of ₹30,263 crores, Apar Industries continues to demonstrate strong operational scale, with net sales reaching ₹5,715.42 crores in Q3 FY26—an impressive 23.06% year-on-year increase and 11.98% sequential growth. However, the company's profitability metrics tell a more nuanced story, with operating margins (excluding other income) contracting to 8.09% from 8.90% in the previous quarter, raising questions about cost management and pricing power in an evolving competitive landscape.

The quarter's performance reflects the dual challenges facing the electrical equipment manufacturer: whilst demand remains robust across its diversified product portfolio, input cost pressures and heightened competition are squeezing margins. The company's PAT margin compressed to 4.42% in Q3 FY26 from 5.17% in the previous quarter, though it remained above the 4.19% recorded in the corresponding quarter last year. This margin volatility underscores the cyclical nature of the electrical equipment sector and the importance of operational efficiency in maintaining profitability.

Financial Performance: Revenue Momentum Meets Margin Headwinds

Apar Industries' Q3 FY26 revenue performance demonstrated impressive momentum, with net sales of ₹5,715.42 crores representing a 23.06% year-on-year surge and an 11.98% sequential increase from Q2 FY26's ₹5,104.16 crores. This marks the company's strongest quarterly revenue in recent history, driven by robust demand across its three core business segments: conductors, cables, and specialty oils. On a nine-month basis for FY26, the company has achieved net sales of ₹16,299.31 crores, reflecting a 21.90% growth compared to the corresponding period last year.

However, the revenue strength was accompanied by concerning margin trends. Operating profit (PBDIT excluding other income) stood at ₹460.91 crores in Q3 FY26, translating to an operating margin of 8.09%—a sequential contraction of 81 basis points from Q2 FY26's 8.90% and significantly below the 9.45% margin recorded in Q1 FY26. This progressive margin compression across the fiscal year suggests mounting cost pressures that the company has been unable to fully offset through price increases or operational efficiencies.

The profit before tax (PBT) for Q3 FY26 came in at ₹340.53 crores, a modest 42.77% year-on-year increase but a 3.40% sequential decline from Q2 FY26's ₹352.52 crores. After accounting for tax expenses of ₹88.83 crores (representing an effective tax rate of 26.09%), the company reported a net profit of ₹251.73 crores. The sequential decline in profitability, despite strong revenue growth, highlights the impact of rising interest costs—which surged to ₹107.90 crores in Q3 FY26 from ₹86.32 crores in the previous quarter—reflecting both higher working capital requirements and elevated borrowing costs.

The quality of earnings remains solid, with the company maintaining a consistent tax rate in the 25-26% range, indicating stable tax planning and no unusual one-off adjustments. Other income contributed ₹27.43 crores in Q3 FY26, up from ₹24.79 crores in the previous quarter, providing some cushion to overall profitability. However, the company's reliance on other income remains modest, with it contributing just 5.62% to the profit before tax, suggesting that core operational performance drives the bulk of earnings.

Operational Excellence: Strong Returns Despite Margin Pressures

Apar Industries continues to demonstrate operational excellence through its capital efficiency metrics, despite the near-term margin challenges. The company's average return on equity (ROE) stands at a robust 21.80%, significantly above the cost of equity and reflecting strong profitability relative to shareholder capital employed. This high ROE indicates that the company generates substantial returns for its shareholders, with every rupee of equity capital producing approximately 22 paise of annual profit. The latest ROE figure of 19.36%, whilst slightly below the average, remains in healthy territory and well above the 15% threshold typically considered excellent for manufacturing companies.

Even more impressive is the company's return on capital employed (ROCE), which averages 35.94% over the long term—a testament to efficient asset utilisation and strong operational management. The latest ROCE of 30.56%, though lower than the average, still reflects exceptional capital productivity. This metric is particularly important in capital-intensive industries like electrical equipment manufacturing, where significant investments in plant, machinery, and working capital are required. Apar's ability to generate returns exceeding 30% on deployed capital demonstrates competitive advantages in manufacturing efficiency, procurement, and market positioning.

The company's balance sheet reflects prudent financial management, with shareholder funds growing to ₹4,503.54 crores in FY25 from ₹3,876.44 crores in FY24—a 16.18% increase driven by retained earnings. Long-term debt stands at a modest ₹298.33 crores, resulting in a negligible debt-to-equity ratio of 0.07. This conservative leverage profile provides the company with significant financial flexibility to pursue growth opportunities, weather economic downturns, and maintain dividend payments without financial strain. The debt-to-EBITDA ratio of 0.48 indicates that the company could theoretically repay all its debt in less than six months using operating cash flows, providing a substantial margin of safety.

Fixed assets have grown to ₹1,433.94 crores in FY25 from ₹1,130.97 crores in FY24, reflecting ongoing capacity expansion and modernisation initiatives. This 26.79% increase in fixed assets signals management's confidence in future demand and willingness to invest in growth. Current assets of ₹9,312.52 crores, whilst substantial, are matched by current liabilities of ₹6,333.93 crores, resulting in healthy working capital of approximately ₹2,978.59 crores. However, the company's cash flow from operations turned negative at ₹283 crores in FY24 due to significant working capital build-up, though this reversed to a positive ₹1,290 crores in FY25, indicating improved working capital management.

Margin Dynamics: The Compression Challenge

The progressive margin compression across FY26 represents the most significant operational challenge facing Apar Industries. Operating margins (excluding other income) have declined sequentially from 9.45% in Q1 FY26 to 8.90% in Q2 FY26 and further to 8.09% in Q3 FY26—a cumulative contraction of 136 basis points over two quarters. This trend contrasts sharply with the company's historical performance, where margins averaged 9.70% in FY24, suggesting structural pressures rather than temporary fluctuations.

Several factors appear to be driving this margin compression. First, raw material costs—particularly copper, aluminium, and steel—have experienced volatility, with global commodity price fluctuations impacting input costs. Whilst Apar has historically demonstrated an ability to pass through commodity cost increases to customers with a lag, the competitive intensity in the electrical equipment sector has limited pricing power. Second, the company's employee costs have risen to ₹99.65 crores in Q3 FY26 from ₹87.88 crores in the corresponding quarter last year, reflecting wage inflation and headcount additions to support revenue growth.

Interest costs have also emerged as a profitability headwind, surging 24.97% sequentially to ₹107.90 crores in Q3 FY26 from ₹86.32 crores in Q2 FY26. This increase reflects both higher working capital requirements to support the 11.98% sequential revenue growth and the elevated interest rate environment. With the company's EBIT-to-interest coverage ratio averaging 3.57x—categorised as "weak" by credit standards—there is limited cushion for further interest cost increases. The Reserve Bank of India's monetary policy trajectory will therefore have a material impact on Apar's near-term profitability.

Industry Leadership: Competitive Positioning Analysis

Apar Industries operates in the highly competitive "Other Electrical Equipment" sector, competing with both established players and emerging manufacturers. The company's market capitalisation of ₹30,263 crores positions it as the third-largest player in its peer group, behind sector leaders but ahead of several smaller competitors. This mid-tier positioning provides both opportunities and challenges: sufficient scale to compete for large projects whilst maintaining the agility to respond to market shifts.

The company's diversified business model—spanning conductors, cables, and specialty oils—provides natural hedges against sector-specific downturns. The conductor business benefits from India's ongoing power transmission infrastructure build-out, with the government's ambitious renewable energy targets driving demand for high-voltage transmission lines. The cable business serves both domestic and international markets, with export opportunities in emerging economies. The specialty oils segment, whilst smaller, enjoys high margins and serves niche industrial applications with limited competition.

Apar's valuation metrics reflect a balanced positioning within its peer group. The company trades at a P/E ratio of 31.75x, which is moderately above peers like Waaree Energies (22.64x) and Premier Energies (24.34x) but significantly below Vikram Solar (52.76x). This premium appears justified by Apar's superior ROE of 21.80%, which exceeds most peers except Premier Energies (34.58%). The company's price-to-book ratio of 6.15x is more attractive than Premier Energies (9.38x) and Emmvee Photovoltaic (13.92x), suggesting reasonable valuation relative to book value.

The company's dividend yield of 0.69% is amongst the highest in the peer group, reflecting a shareholder-friendly capital allocation policy. With a dividend payout ratio of 24.94%, Apar maintains a prudent balance between returning cash to shareholders and retaining earnings for growth investments. The latest dividend of ₹51 per share, paid in July 2025, represents a meaningful return on investment for long-term shareholders, particularly when combined with capital appreciation potential.

Valuation Analysis: Fair Pricing With Growth Concerns

At the current market price of ₹7,686.45, Apar Industries trades at a P/E ratio of 31.75x trailing twelve-month earnings—a moderate premium to the sector average P/E of 53x for "Other Electrical Equipment" companies. This valuation discount to the sector suggests that the market is pricing in concerns about near-term margin pressures and growth sustainability. However, the company's strong historical track record and diversified business model provide some justification for a valuation premium over pure-play competitors.

The company's price-to-book ratio of 6.15x appears reasonable when assessed against its ROE of 21.80%. Using the simple valuation heuristic that P/BV should approximate ROE (expressed as a percentage), Apar's ratio of P/BV to ROE stands at 0.28, suggesting the stock trades at a discount to its return-generating capability. However, this analysis must be tempered by the recognition that current ROE may not be sustainable if margin pressures persist, potentially justifying the valuation discount.

The company's EV/EBITDA multiple of 17.45x and EV/EBIT multiple of 19.07x suggest moderate valuation levels for a company with Apar's growth profile. The five-year sales CAGR of 26.51% and EBIT CAGR of 40.01% demonstrate exceptional historical growth, though the PEG ratio of 3.02 indicates that the market is sceptical about the sustainability of this growth trajectory. A PEG ratio above 2.0 typically suggests that a stock is expensive relative to its growth prospects, implying that investors should temper expectations for future growth acceleration.

The stock's valuation grade has fluctuated between "Very Expensive," "Expensive," "Fair," and "Attractive" over the past year, currently settling at "Fair" as of January 2026. This assessment reflects the balance between the company's strong fundamental quality and the near-term headwinds facing margins and growth. The 52-week price range of ₹4,270 to ₹9,900 highlights the significant volatility in investor sentiment, with the current price sitting 22.36% below the peak—a correction that has brought valuation to more reasonable levels.

Shareholding Pattern: Institutional Confidence Building

The shareholding pattern of Apar Industries reveals a stable promoter base combined with growing institutional interest, a combination that typically signals confidence in the company's long-term prospects. Promoter holding has remained steady at 57.77% over the past five quarters, indicating strong commitment from the founding Desai family. The absence of any promoter pledging (0.0% pledged shares) provides additional comfort, as it eliminates concerns about financial stress at the promoter level that could lead to forced selling.

More encouraging is the steady increase in mutual fund holdings, which have risen from 18.15% in March 2025 to 21.55% in December 2025—a gain of 340 basis points over three quarters. This sequential increase across Q1, Q2, and Q3 of FY26 (+137 bps, +87 bps, and +116 bps respectively) suggests that domestic institutional investors are accumulating the stock, likely viewing the recent price correction as an attractive entry opportunity. With 31 mutual funds holding positions in Apar, the stock enjoys broad-based institutional support rather than concentration in a few large funds.

Foreign institutional investor (FII) holdings have shown more volatility, declining from 10.22% in December 2024 to 9.35% in December 2025. This 87 basis point reduction over the year reflects the broader trend of FII selling in Indian mid-cap stocks amidst global monetary tightening and reallocation to developed markets. However, the sequential increase of 10 basis points in Q3 FY26 suggests that the selling pressure may be stabilising. With 207 FIIs holding positions, the stock maintains reasonable foreign investor interest despite the net reduction.

Insurance company holdings have declined sharply from 0.54% in March 2025 to just 0.12% in December 2025, indicating that this investor category has reduced exposure significantly. Other domestic institutional investors (DIIs) have also trimmed holdings from 2.12% in September 2025 to 1.53% in December 2025. The retail and non-institutional investor base stands at 9.67%, down from 11.74% in March 2025, suggesting some profit-booking by individual investors following the stock's strong multi-year run.

Stock Performance: Volatility Amid Long-Term Strength

Apar Industries' stock price performance tells a tale of two timeframes: exceptional long-term wealth creation tempered by significant near-term volatility. Over the past five years, the stock has delivered a staggering 2,018.65% return, massively outperforming the Sensex's 78.38% gain by an alpha of 1,940.27 percentage points. This extraordinary performance reflects the company's transformation from a traditional electrical equipment manufacturer into a diversified, high-growth industrial conglomerate with improving profitability metrics.

The three-year and four-year returns of 413.66% and 857.04% respectively underscore the sustained nature of this outperformance, with the stock consistently generating alpha across multiple time horizons. Even over the two-year period, the stock has delivered 33.89% returns against the Sensex's 14.77%, maintaining a 19.12 percentage point alpha. These returns place Apar amongst the top wealth creators in the Indian mid-cap space, rewarding long-term investors who recognised the company's growth potential early.

However, the near-term picture presents a stark contrast. The stock has declined 20.65% over the past six months, underperforming the Sensex by 22.16 percentage points. The three-month return of -18.65% and one-month return of -10.36% indicate accelerating selling pressure, likely driven by concerns about margin compression, elevated valuations, and broader market volatility. Year-to-date for FY26, the stock is down 8.14%, modestly underperforming the Sensex's 3.11% decline.

The stock's technical indicators reflect this bearish momentum. Currently in a "Mildly Bearish" trend since January 13, 2026, the stock trades below all major moving averages—5-day (₹7,174.05), 20-day (₹7,743.01), 50-day (₹8,455.28), 100-day (₹8,502.87), and 200-day (₹8,116.16)—a configuration that typically signals sustained selling pressure. The MACD indicator shows bearish signals on both weekly and monthly timeframes, whilst Bollinger Bands indicate mildly bearish to bearish conditions, suggesting the stock remains under distribution.

The stock's high beta of 1.29 indicates elevated volatility relative to the broader market, with the stock typically moving 29% more than the Sensex in either direction. This high-beta characteristic, combined with the current volatility of 43.14%, classifies Apar as a "High Risk Medium Return" investment in the near term. The risk-adjusted return of 0.13 over the past year compares unfavourably to the Sensex's 0.70, suggesting that the stock's returns have not adequately compensated investors for the volatility endured.

Investment Thesis: Quality Meets Valuation Concerns

Apar Industries' investment thesis rests on four key pillars: exceptional quality, robust long-term growth, reasonable valuation, and mixed near-term drivers. The company's quality credentials are undeniable, with an "Excellent" quality grade based on strong ROE (21.80%), healthy sales growth (26.51% CAGR), minimal leverage (debt-to-equity of 0.07), and zero promoter pledging. These factors position Apar as one of the highest-quality names in the electrical equipment sector, with financial metrics that compare favourably to much larger peers.

The company's growth trajectory has been impressive, with net sales growing at a 26.51% annual rate and EBIT expanding at 40.01% over the past five years. This growth has been driven by multiple factors: capacity expansion, product diversification, export market penetration, and operating leverage as the business scales. The company's ability to compound earnings at such high rates whilst maintaining strong returns on capital demonstrates the quality of its growth—not merely top-line expansion but profitable, capital-efficient growth.

Valuation presents a more nuanced picture. At a P/E of 31.75x, the stock trades at a moderate premium to historical averages but at a discount to the sector P/E of 53x. The PEG ratio of 3.02, however, suggests that the market is pricing in significant growth deceleration, which may or may not materialise. The "Fair" valuation grade indicates that the stock is neither compellingly cheap nor egregiously expensive—a neutral stance that offers limited margin of safety but also avoids excessive valuation risk.

The near-term drivers present mixed signals. On the positive side, the quarterly financial trend remains "Positive," with nine-month sales growth of 21.90% and continued profitability expansion on a year-on-year basis. The company's order book (not disclosed in public filings) and capacity utilisation rates will be critical factors to monitor. On the negative side, the technical trend is "Mildly Bearish," with the stock trading below all major moving averages and momentum indicators signalling continued weakness. The margin compression trend is perhaps the most concerning near-term factor, as it suggests fundamental challenges beyond mere technical selling.

Key Strengths & Risk Factors

Outlook: Key Monitoring Points

The forward outlook for Apar Industries hinges on management's ability to navigate the margin pressure challenge whilst sustaining revenue growth momentum. The company's Q4 FY26 results will be critical in determining whether the margin compression represents a temporary phenomenon or a more persistent structural issue. Investor focus will be on management commentary regarding pricing actions, raw material cost trends, and operating efficiency initiatives.

The broader macroeconomic environment will also play a significant role. India's infrastructure investment cycle, driven by government capital expenditure and private sector participation, should provide a supportive demand backdrop for the company's conductor and cable businesses. The renewable energy sector's expansion, with ambitious solar and wind capacity addition targets, creates substantial opportunities for power transmission infrastructure—a key end-market for Apar's products. However, global commodity price volatility and interest rate trajectory remain wildcards that could impact both input costs and financing expenses.