Are Sreeleathers Ltd. latest results good or bad?

Sreeleathers Ltd. has reported its financial results for the second quarter of FY26, showcasing significant sequential growth driven by festive demand. The company achieved a net profit of ₹8.61 crores, reflecting a substantial quarter-on-quarter increase of 193.85% and a year-on-year growth of 33.49%. Revenue for the same period reached ₹74.71 crores, marking a 49.12% increase from the previous quarter and a 19.23% rise compared to the same quarter last year. However, the operating margin, excluding other income, was recorded at 15.62%, which, while improved from 8.52% in the previous quarter, indicates a year-on-year decline of 26 basis points from 15.88%. The profit after tax (PAT) margin also improved to 11.52%, up 567 basis points sequentially and 123 basis points year-on-year. Despite these positive quarterly figures, the annual performance presents a more concerning picture, with FY25 net sales showing only a modest growth of 0.9% compared to FY24, and net profit declining by 15.38%. The company's return on equity (ROE) remains low at 5.76%, suggesting inefficiencies in capital utilization, and the average return on capital employed (ROCE) of 7.26% falls short of its cost of capital. The competitive landscape is challenging for Sreeleathers, as it faces pressure from both established brands and emerging direct-to-consumer players in the footwear sector. The company's positioning in the mass-to-mid-market segment may hinder its growth potential, especially as consumer preferences shift towards premium products. Additionally, Sreeleathers' shareholding structure shows a stable promoter holding of 75%, but there is a notable lack of institutional interest, with only 6.90% held by foreign institutional investors and no mutual fund or insurance company holdings. This absence may reflect broader market skepticism regarding the company's long-term prospects. In summary, while Sreeleathers Ltd. has shown strong quarterly growth driven by seasonal demand, underlying operational challenges and a stagnant annual performance raise concerns about its long-term viability. The company saw an adjustment in its evaluation, reflecting these mixed operational trends.