Are Divgi Torqtransfer Systems Ltd latest results good or bad?

Divgi Torqtransfer Systems Ltd's latest financial results for the quarter ended December 2025 indicate a significant topline expansion, with net sales reaching ₹90.62 crores, reflecting a year-on-year growth of 72.58% and a sequential increase of 9.22%. This marks the highest quarterly revenue recorded by the company, suggesting robust demand in the auto components sector. However, the company experienced margin pressures, as the operating margin (excluding other income) declined to 19.55%, down 51 basis points from the previous quarter, indicating rising cost challenges. The net profit for the quarter stood at ₹11.77 crores, which represents a quarter-on-quarter growth of 9.49% and a substantial year-on-year increase of 124.62%. The profit after tax (PAT) margin improved slightly to 12.99%, up 3 basis points from the prior quarter. Despite these positive indicators, the company's financial profile raises concerns due to weak return ratios, with return on equity (ROE) at 6.27% and return on capital employed (ROCE) at 11.02%, both significantly below industry standards. Additionally, the company's reliance on non-operating income, which accounted for nearly 36% of profit before tax, raises questions about the sustainability of its profitability. The elevated valuation metrics, including a trailing P/E ratio of 67x, suggest that the market may be pricing in aggressive growth expectations that could be challenging to sustain given the structural profitability issues highlighted by a five-year EBIT growth rate of -35.96%. Overall, while Divgi Torqtransfer has demonstrated strong revenue momentum, the operational challenges and valuation concerns warrant careful consideration. The company saw an adjustment in its evaluation, reflecting the complexities of its financial performance amidst these trends.