Are Dharani Finance Ltd latest results good or bad?

Dharani Finance Ltd's latest financial results for Q2 FY26 present a mixed operational picture. The company reported net sales of ₹0.33 crores, reflecting a sequential decline of 8.33% from the previous quarter. However, on a year-on-year basis, revenues showed a growth of 43.48% compared to ₹0.23 crores in Q2 FY24, indicating some positive momentum in revenue generation despite the small base. In terms of profitability, net profit fell to ₹0.10 crores, which is a significant drop of 37.50% from ₹0.16 crores in Q1 FY26 and a decline of 9.09% year-on-year from ₹0.11 crores in Q2 FY25. This decline in net profit can be attributed primarily to a sharp increase in the effective tax rate, which surged to 56.52% from 22.73% in the previous quarter, raising concerns about the sustainability of earnings. The operating margin remained strong at 69.70%, an improvement from 66.67% in the previous quarter, showcasing the company's ability to maintain operational efficiency despite the challenges in profitability. However, the profit after tax (PAT) margin fell to 30.30%, down from 44.44% in Q1 FY26, reflecting the impact of the elevated tax burden on overall profitability. The financial performance indicates that while Dharani Finance is managing to maintain high operating margins, the significant tax burden and declining net profit present ongoing operational challenges. Furthermore, the company operates in a highly competitive non-banking financial company (NBFC) sector, where scale and efficiency are critical for success. Additionally, the company's average return on equity (ROE) remains low at 2.41%, indicating weak capital efficiency compared to industry standards. The lack of institutional participation and minimal liquidity further complicate the investment landscape for Dharani Finance. Overall, the company saw an adjustment in its evaluation, reflecting the complexities of its financial situation, characterized by high operating margins but significant challenges in profitability and capital efficiency.