Are IIFL Capital latest results good or bad?

IIFL Capital Services' latest financial results for Q2 FY26 reveal several challenges impacting its performance. The company reported net sales of ₹572.08 crores, reflecting a sequential decline of 7.34% and an 11.36% contraction year-on-year. This decline indicates weakening business momentum within the capital markets segment, which has faced multiple headwinds.
Net profit for the quarter stood at ₹84.41 crores, showing a significant decline of 51.86% compared to the previous quarter, and a year-on-year drop of 58.84%. This sharp decrease in profitability is concerning, particularly as it marks the lowest level of profitability in recent quarters. The profit before tax also fell to ₹119.90 crores from ₹227.54 crores sequentially, further highlighting the pressure on earnings.

The operating profit margin, excluding other income, contracted to 37.22%, down from 41.27% in the same quarter last year. This compression in margins suggests rising competitive pressures and potentially higher variable costs in the broking and capital markets business. Additionally, the company's PAT margin decreased to 14.88%, indicating a significant drop in profitability.

A notable factor contributing to the decline in net profit was a dramatic swing in other income, which turned negative at ₹24.67 crores compared to a positive ₹63.03 crores in the previous quarter. This volatility raises concerns about the sustainability and predictability of the company's earnings profile.

Despite these challenges, IIFL Capital maintains a strong return on equity (ROE) of 28.41%, reflecting efficient capital deployment. The company's balance sheet remains healthy, with no long-term debt and a manageable net debt-to-equity ratio of 0.37. However, the decline in foreign institutional investor (FII) stake from 19.00% to 16.93% over the past year indicates waning institutional confidence.

Overall, the company's financial performance in Q2 FY26 has prompted an adjustment in its evaluation, reflecting the significant operational challenges and earnings volatility faced during the quarter. Investors will need to monitor the company's ability to stabilize earnings and restore margin momentum in the upcoming periods.