Are Allied Digital latest results good or bad?

Allied Digital's latest financial results for Q2 FY26 reveal a complex operational landscape. The company reported a net profit of ₹15.42 crores, reflecting a year-on-year growth of 32.93%, while revenue reached an all-time high of ₹233.70 crores, marking a 15.11% increase compared to the previous year. This growth in revenue is notable as it represents the sixth consecutive quarter of revenue expansion, indicating resilience in a challenging IT services environment.
However, the operational metrics present a more nuanced picture. The operating margin, excluding other income, contracted to 9.12%, down from 9.46% in the same quarter last year, highlighting ongoing cost pressures despite the revenue growth. Additionally, the company's net profit margin of 6.60% has improved from 5.71% a year earlier but remains below the 7.98% achieved in March 2024. This suggests that while profitability has shown some improvement, it is not translating into stronger margins, which raises concerns about operational efficiency.

The reliance on other income, which constituted 33.85% of profit before tax in Q2 FY26, raises questions regarding the sustainability and quality of earnings. This dependency on non-operating income could signal potential vulnerabilities in the company's core operational performance.

On the balance sheet front, Allied Digital maintains a relatively healthy position with a net cash status and a debt-to-equity ratio of -0.20, indicating financial stability. However, the company’s return on equity (ROE) of 6.47% and return on capital employed (ROCE) of 9.60% are significantly below industry standards, suggesting inefficiencies in capital utilization.

In terms of market performance, the stock has faced substantial underperformance, declining 38.79% over the past year, which is notably worse than the broader market index. This trend, coupled with a revision in its evaluation, indicates that investor sentiment may be cautious moving forward.

Overall, while Allied Digital has demonstrated strong revenue growth and maintains a solid balance sheet, the operational challenges, margin pressures, and reliance on non-operating income present significant concerns that investors should consider.