Are ARC Finance Ltd latest results good or bad?

ARC Finance Ltd's latest financial results highlight significant operational volatility and persistent challenges in profitability. In the quarter ended September 2025, the company reported a remarkable quarter-on-quarter revenue increase of 246.67%, reaching ₹1.04 crores. However, this surge in revenue contrasts sharply with a net profit of just ₹0.12 crores, reflecting a net profit margin of 11.54%, which is considerably lower than previous periods. Year-on-year comparisons reveal a stark decline in profitability, with net profit down 96.45% from the same quarter last year. The company's financial performance indicates erratic revenue streams, with the latest quarter's revenue showing a 40.54% increase compared to the previous year, yet profitability remains weak. The operating profit margin has also seen a significant contraction, dropping from 76.67% in the previous quarter to 22.12% in Q2 FY26, raising concerns about the sustainability of earnings. On a half-yearly basis, the results for H1 FY26 show combined revenue of ₹1.34 crores with a net profit of ₹0.25 crores, which is a stark contrast to H1 FY25's net profit of ₹6.44 crores on similar revenue levels. This decline underscores a dramatic erosion in profitability despite stable revenue figures. The balance sheet reflects minimal leverage, with zero long-term debt and a debt-to-equity ratio of 0.01. However, the company's return metrics are concerning, with an average return on equity (ROE) of just 1.35%, significantly below industry standards. The latest ROE figure of -2.19% further emphasizes the challenges faced in generating sustainable returns. Cash flow analysis reveals operational difficulties, as the company reported a substantial operational cash outflow of ₹40 crores against a profit before tax of ₹4 crores for FY25. This discrepancy raises questions about the quality of earnings and the company's ability to convert reported profits into cash. Overall, ARC Finance Ltd's financial results reflect a company grappling with severe operational challenges, characterized by extreme volatility in revenue and profitability, weak return metrics, and a lack of institutional confidence. The company has seen an adjustment in its evaluation, reflecting these ongoing concerns.